Brown left red-faced as worldwide tax plans snubbed

British Prime Minister Gordon Brown tonight suffered an embarrassing rebuff when he floated the prospect of a new tax worldwide, only to have it flatly and publicly rejected by the United States and other major financial players.

Mr Brown raised the possibility of a worldwide levy on financial transactions in a speech to the world’s most powerful finance ministers.

The so-called “Tobin Tax”, named after the US economist who invented it, would apply in international financial transactions, but would not apply at the retail level of holidaymakers buying foreign currency.

Mr Brown raised it as one of several possibilities for achieving what he called a “social contract” between the big financial institutions and the public.

But US Treasury Secretary Timothy Geithner flatly rejected the idea, as did Canadian finance minister Jim Flaherty.

Mr Geithner told Sky News: “That’s not something that we’re prepared to support.”

He later told a news conference: “This is an idea that has been around for a long time. Many countries have a lot of experience with the design of these kinds of taxes. I think, frankly, the experience has been mixed.”

And Mr Flaherty said: “We are not in the business of raising taxes, we are in the business of lowering taxes in Canada. It is not an idea we would look at.”

The head of the IMF, Dominique Strauss-Khan, said he believed a transaction tax was unlikely to be adopted as “transactions” were difficult to measure.

And the British Bankers’ Association chief executive Angela Knight said: “The reason it has never been implemented is, whilst theoretically it is OK, practically it doesn’t operate.”

Mr Brown’s call came in a speech to finance ministers from the G20 group of countries meeting in St Andrews.

He called for a new global “social contract” with the financial institutions to ensure taxpayers around the world would never again have to bear the cost of banking failure.

He said that in future there must be a “just distribution of risks and rewards”.

He said: “I believe we should discuss whether we need a better social contract to reflect the global responsibilities of financial institutions to society.

“This is a unique sector that, when it fails, imposes such a high cost to the wider economy and damage to society that government intervention becomes essential. So the taxpayer had no real choice but to step in to keep the system afloat.”

Mr Brown said that it could be achieved through an insurance fee, a special “resolution fund”, contingent capital arrangements, or a global financial transactions levy – the so-called “Tobin tax”.

Mr Brown stressed that in order to work, the measures would have to be implemented by all the major financial centres around the world – including the US, Europe, Asia, the Middle East and Switzerland.

“Let me be clear: Britain will not move unless others move with us together,” he said.

The measures would also have to be “non-distortionary” – to ensure they did not result in inefficient allocation or encourage avoidance – and should reinforce the action already taken to stabilise the financial system.

He stressed that the contribution of the financial services sector would have to be “fair, measured and enable financial services to make their necessary contribution to future economic growth”.

“I do not in any way underestimate the enormous and difficult practical and technical issues that will need to be overcome that a globally cohesive system raises,” he said.

“But I do not think these difficulties should prevent us from considering with urgency the legitimate issues I have discussed.

“Those goals are ambitious but they are necessary.

“I believe in a strong global financial sector. I believe in an open and inclusive globalisation. But I believe that the global economy and global society will only thrive if it is brought within a rational and fair framework.”