Financial Speculation Taxes and the London Stock Exchange

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Written by Dean Baker   
Wednesday, 29 February 2012 17:07

Those who like to argue that financial speculation taxes are not possible or won't raise any money always have a difficult time when the topic of the London stock exchange comes up. The problem is that the London stock exchange has imposed a tax on stock trades for centuries. For the last quarter century it has been set at 0.5 percent on a trade (0.25 percent on both the buyer and the seller), before 1986 it had been 1.0 percent of the value of the trade.

In spite of this tax the London stock exchange continues to be one of the largest in the world, thumbing its nose at those knowledgeable finance types who insist that all trading would just migrate elsewhere in response to much smaller taxes. The UK government also raises a considerable amount of money through this tax. Annual revenue runs between 0.2-0.3 percent of GDP, which would come to $30-$40 billion a year in the United States. This is real money even in Washington.

For the most part, movements in the London stock exchange index have tracked reasonably well movements in the S&P 500, but for the last four years, it looks at the main London index was considerably less volatile. There are many factors that might explain the greater volatility of S&P 500 in this period, other than the financial transactions tax, but it is still striking to note the difference.

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5yr-FTSE-SP

Source: Yahoo! Finance.

Tags: FTT