The surprise proposal was floated by Gordon Brown, and although the UK has opposed such taxes in the past, the Prime Minister said transaction levies should form part of a new “social contract” with the world’s banks that could help make them more responsible.
The G20 gathering primarily focused on what was still needed to keep the global recovery going. If Mr Brown’s proposal had won the backing of the United States, it would have represented a major shift in economic policy.
The US Treasury Secretary, Timothy Geithner and his Canadian counterpart Jim Flaherty both dismissed the idea.
But Mr Brown and Chancellor Alistair Darling appeared to suggest that as the International Monetary Fund was carrying out its own evaluation, there was still hope of the idea being resuscitated. The idea of transaction taxes was a “work in progress”, the UK Government said.
Mr Geithner said the idea of transaction taxes, first proposed by the economist James Tobin during Richard Nixon’s time in the White House, had “been around for a while”, had been tried with mixed results and was not something Barack Obama’s administration were prepared to support.
Mr Flaherty said Canada was not interested in the business of raising taxes, but instead wanted to see lower taxes. “This is not an idea we would look at,” he said.
Mr Brown and Mr Darling will now come under pressure to explain why Britain’s advance negotiators had risked the PM putting up an idea that was quickly and embarrassingly shot down.
Regardless of the rejection, last night Mr Darling insisted the G20 gathering had produced a “major step forward”.
The final communiqué from St Andrews set out timetables for developing policies for balanced growth and for further financial sector reform.
Mr Darling said although the threat of a further downturn had receded, it had been agreed it was too early to withdraw emergency stimulus
packages agreed by the G20 last year.
The G20 official statement read: “The recovery is uneven and remains dependent on policy support, and high unemployment is a major concern.”
With the crucial climate talks in Copenhagen now only a month away, the Chancellor said there had been “full discussion” and “good progress” made on climate change. But the limited detail emerging from St Andrews now suggests that the idea of a concrete and binding deal has probably been kicked into touch until further climate talks next year.
Mr Brown will now be under pressure to explain his U-turn on transaction taxes. Mr Darling said the IMF had been asked at the recent Pittsburgh G20 gathering to make a further study of such taxes. The Chancellor said the Prime Minister had specified that if transactions levies were to become a new tool in international revenue-gathering they would need to be “universal, comprehensive, compatible with financial stability and fair.”
Last night the British Bankers Association questioned the viability of delivering such a tax regime that could have global authority. The association’s chief executive, Angela Knight, said simply: “They don’t work.”
Though Mr Brown himself admitted their implementation would mean “enormous and difficult practical and technical issues” the rejection by the G20 does not appear to have killed off the issue for the UK Government.
