Cablegate: Prime Minister Still Focused On Tobin Tax,
DE RUEHLO #2742/01 3431613
ZNY CCCCC ZZH
P 091613Z DEC 09
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC PRIORITY 4210
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
C O N F I D E N T I A L LONDON 002742
NSC FOR FROMAN
TREASURY FOR BRAINARD, SOBEL, BAKER, WINN
EO 12958 DECL: 12/03/2019
TAGS ECON, PGOV, UK
SUBJECT: PRIME MINISTER STILL FOCUSED ON TOBIN TAX,
DISAPPOINTED IN U.S. POSITION
REF: LONDON 2548
Classified By: Ambassador Louis Susman for reasons 1.4 b and d.
1. (C/NF) Summary. Prime Minister Brown continues to press hard for international adoption of a Tobin Tax, despite being aware of U.S. opposition to the tax. He has raised this issue - and bonuses - on several occasions directly with the Ambassador, and said that he saw cooperation on financial services and Afghanistan as the critical elements of U.S.-UK relationship. Brown first highlighted the Tobin Tax at the November G-20 Ministerial in St. Andrews, and subsequently told Ambassador that he was disappointed that Treasury Secretary Geithner publicly refused to support the UK position. The political opposition in the UK also is questioning the lack of U.S. support. The PM is using the issue for domestic political gain but also for reasons of “social justice.” The UK may feel emboldened on this issue, given French Foreign Minister Kouchner’s proposal at COP-15 for an international tax on financial services for programs for poverty reduction and climate change, and would likely criticize the U.S. if there were no further international movement on this issue. End Summary.
Prime Minister Raises Tax and Bonuses with Ambassador
2. (C/NF) Prime Minister Brown continues to press hard for international adoption of some form of a Tobin Tax on financial transactions, despite being fully aware of U.S. opposition to the tax. In recent speeches to major business groups, at the Commonwealth Summit, and in press conferences, the PM has emphasized that a Tobin Tax must be among the options explored to ensure that taxpayers do not bear the cost of future bank bailouts. The Prime Minister has raised this issue several times with Ambassador Susman, most recently during the Ambassador’s call to discuss the Afghanistan strategy on November 30, and in a Thanksgiving call from the PM to the Ambassador. The Prime Minister has stated that he saw coordination of our actions on Afghanistan and financial services as the cornerstones of the UK-U.S. bilateral relationship, and has expressed disappointment that on the latter, the U.S. has not been as supportive as he had hoped. We expect that the PM will become emboldened to push harder for the tax after France’s Foreign Minister Kouchner, at the Copenhagen COP-15, proposed a .0005 percent tax on financial transactions to fund poverty reduction and combating climate change in developing countries.
3. (C/NF) The Prime Minister also has raised with the Ambassador the issue of bank bonuses, and has repeatedly queried what the U.S. government position would be if Goldman Sachs, among others, announced large bonuses. The issue of bonuses is coming to a head in the UK this week, with the Chancellor announcing new measures during his December 9 pre-budget report. This issue will reported septel.
Background - Brown at St. Andrews
4. (C/NF) During the November 6-7 G-20 Ministerial in St. Andrews, Prime Minister Brown unexpectedly focused on the Tobin Tax - a tax on financial transactions - as one of the key measures that should be explored to ensure that financial institutions, and not taxpayers, would in the future bear the costs of risks they take. As reported in reftel, the Prime Minister, Chancellor Darling and other HMG officials had been previously informed about the U.S. opposition to such a tax. However, the PM’s staff nevertheless highlighted the tax in pre-briefing the press on his speech, a strategy that backfired when the press focused on the lack of support from the U.S., other governments and the IMF. (Comment: We believed at the time that the PM’s close advisor, Shriti Vadera, who no longer is officially working in government, was behind the push for the Tobin Tax. Recently, Roland Rudd, head of the think-tank Business for a New Europe and well-connected in the Labour Party, verified that Vadera was the invisible hand behind the scenes. End Comment.) Immediately after the meeting in St. Andrews, the Prime Minister called the Ambassador and expressed his disappointment that Treasury Secretary Geithner had so publicly declined to support the PM’s proposal.
5. (SBU/NF) The Prime Minister, Chancellor Darling and
Financial Services Authority Chairman Lord Turner have, since St. Andrews, continued to draw attention to the Tobin Tax. In a November 25, Commonwealth Summit Press Briefing, the PM stated, that to make banks more accountable, “we can look at an insurance scheme; we can look at the creation of resolution funds; we can look at asking banks to hold more capital; we can look at global levy on transactions” and that he would raise these options with his Commonwealth partners. In his November 23 speech to the Confederation of British Industry, Brown also emphasized the “global levy” as an option to rebuild trust between “banks and the societies” they serve. Turner in a speech at the British Embassy in Paris on November 30 said that policy-makers “should not exclude consideration of taxes on financial transactions.” He also acknowledged, however, the limitations of such a tax. It would not prevent all or even most of the “rent extraction” in the financial sector, nor would it would create the perfect amount of liquidity in the system. Darling in a BBC radio interview on November 8 admitted that it would be difficult to reach an international agreement on a global banking tax, but it was an idea that had to be considered.
Opposition Joins the Bandwagon
6. (C/NF) Labour Party officials are not the only ones expressing disappointment with the U.S. position on the Tobin Tax. Baroness Shirley Williams and Lord Paddy Ashcroft, two respected Liberal Democrats, recently told emboffs that they were bewildered and disappointed by U.S. opposition. Conservative Party leaders have not addressed the Tobin Tax in their position papers or remarks. Opposition leader David Cameron did state in a November 19 press conference that “the problem with the Tobin Tax is that if we applied it here and others didn’t follow, we would lose lots of companies that would simply go elsewhere. It is important to remember that financial services is not just the City - there are hundreds of thousands of people employed in banks, building societies and insurance firms throughout the country.”
7. (C/NF) The UK financial sector has been rather muted in its comments, preferring to remain silent unless and until the government makes an actual proposal. JP Morgan officials told us that the firm is opposed to the idea of a Tobin tax and is particularly concerned about the difficulty of implementation, which would need to be universal to avoid regulatory arbitrage. They also said there would be intense lobbying to exempt some transactions from a tax, predicting that U.S. treasuries, other government bonds and sovereign debt would be excluded from such a tax. The tax would be even more discriminatory since it would only target transactions of private firms and individuals.
8. (C/NF) Comment: The Prime Minister’s position is largely being driven by domestic politics, as a way to be seen as “punishing the banks.” But there is also an element of social justice and a need to fill a gaping budget deficit. The recent announcement by the French FM plays on the social justice aspect. We expect the PM will continue to press this issue, and will criticize the U.S. if it gets no further international traction.
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