Is a 'Tobin tax' right for the UK?

As a Parliamentary candidate, I routinely receive emails asking me to sign up to various things or state where I stand on a particular issue. One which I recently received stated as follows:

"Dear Mr Darling,

Like many of the tens of thousands of supporters of the Robin Hood Tax I will be looking closely at your budget. I hope you are not planning any measures that would mean people like me will again have to bear the brunt of paying down the deficit.

I strongly believe a tiny tax on major financial transactions is the fairest way to address the economic challenges we face. You could start on March 24th by putting a small tax on sterling currency transactions. This would hit multi-million pound trades by banks, not people's holiday money. It could raise at least £3 billion every year to deal with the budget deficit, and provide extra money to address poverty and climate change. The UK's leadership would also pave the way for other Robin Hood taxes at a global level.

Last year we all bailed out the banks and for many of them the worst has passed. But for people in the UK and around the world, the financial crisis is far from over. It's time for those who caused the crisis to take greater responsibility in putting our public finances right. I hope your budget will reflect this and that you will introduce the first Robin Hood Tax, on sterling.

A copy of this message has also been sent to the prospective parliamentary candidates in my constituency."

The reply I sent read as follows:

"Dear [ ]:

Thanks for your timely email. In principle I support the idea of a 'Tobin tax' provided it is done on a multilateral basis. I don't support a Tobin tax done on a unilateral basis in the UK for two reasons (1) it will raise little revenue as most of the transactions to which the tax would apply will simply move outside the UK (2) although it's possible that the UK taking a 'leadership' role on this issue might encourage others to follow, it is equally possible and in my view more likely that many other states will use it to encourage financial institutions to do business outside the UK.

For example, when the 50% tax rate for top earners was announced in the UK, various arms of the French state began ringing City of London based financial institutions encouraging them to move to Paris where the tax would not apply, an outcome clearly not in our national interest. That is why in my view, for a Tobin tax to work properly in a way which does not do damage to "Great Britain plc", it needs to be done on a multilateral basis.

Thanks again for getting in touch."

I'd be interested to know what readers of this blog think about a global tax on currency transactions - please let me know.