A financial transactions tax, sometimes dubbed a “Robin Hood” tax by its supporters, would cost the UK economy up to 20 times more than the revenues it would raise, lawmakers in the UK parliament said last week. 

The idea of a FTT, which is also sometimes named a Tobin Tax after the US economist who came up with the idea in the 1970s, would only work if it is enforced around the world, an EU Sub-Committee on Economic and Financial Affairs and International Trade in the House of Lords said.

The UK government, such as finance minister George Osborne, has attacked the notion of an FTT, arguing that it will have a disproportionate effect on London as a financial centre, because London accounts for more turnover than the rest of the European Union’s member financial centres put together.

"The FTT is likely to induce a loss in GDP between five and 20 times larger than the revenues raised from the tax," the committee, which is part of the upper chamber of the parliament, said.

"We remain to be convinced that such a tax would either reduce instability in the market or prevent another financial crisis," it said.

There are concerns that if such a tax is levied in only one region of the world, it will push banks and other financial intermediaries to transfer trading activities to other locations. As an example of such a transfer of activity, in the late 1960s, a US levy called the Interest Equalization Tax was regarded as driving a large offshore dollar market to London at the time. There are also concerns that an FTT will reduce market liquidity and hence increase volatility rather than reduce it.

To view a recent opinion piece on the idea of such a tax, click here.