Alistair Darling backs Brown's Tobin tax despite cold shoulder from US

Alistair Darling backs Brown's Tobin tax despite cold shoulder from US

Alistair Darling today pledged that the Government would step up its fight for a new international tax on banking despite an initially frosty response to the plan from Washington.

The chancellor said there was broad agreement among Britain's partners in the G20 group of rich and developing nations that it was worth exploring new curbs on global finance following the worst economic crisis since the 1930s.

After Gordon Brown's unexpected weekend backing for consideration of a so-called Tobin tax, Britain now plans to keep up the pressure ahead of an International Monetary Fund report on transaction taxes due out in April.

Darling said that remarks from Timothy Geithner, the US treasury secretary, that the US would not back a "day-to-day financial transaction tax" did not mean the Obama administration was ruling out any form of global charge on the financial sector.

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Meanwhile, Downing Street sources said the prime minister's opponents had failed to grasp how the political mood had been transformed by the financial crisis.

Brown used a speech in St Andrews to call for "a better economic and social contract between financial institutions and the public based on trust and a just distribution of risks and rewards".

His comments were seen as an endorsement of the so-called Tobin tax - a proposal for an international tax on currency transactions floated by the economist James Tobin in the 1970s but never implemented.

Any proposal of this kind would be unworkable without US support and the initial reaction was interpreted as a snub to Brown. Geithner ruled out a tax on day-to-day international transactions; Dominique Strauss-Khan, the head of the IMF, said he thought that such a measure was unlikely to be adopted; and Jim Flaherty, Canada's finance minister, said his government was interested in lowering taxes, not raising them.

But today, government sources indicated that the focus on the Tobin tax had obscured the extent to which there is international agreement on the need to ensure the financial sector contributes more to insure against the costs of banks failing.

Brown accepts that there is no agreement yet about what should be done, with the Americans more interested in imposing some form of compulsory insurance on the banks and Europeans more sympathetic to some form of Tobin-style taxation. But he does not believe consensus is impossible.

In an interview with BBC Radio Scotland, Darling acknowledged that there would be "difficulties" in reaching an international agreement on a global banking tax but insisted that it was an idea that was worth investigating.

"We have talked to the Americans, just as we have talked to others – there are other countries too that are interested in looking at this," Darling said.

"No-one is saying this is easy, but if you don't look at the possibilities and ask yourself whether or not there could be a fairer way of making sure these big multi-nationals make a fair contribution, then I think you would be missing something."

Darling insisted that Geithner was also in "broad agreement" with the general principle. "He is very clear that institutions rather than individuals should bear the cost of this," Darling said.

The chancellor denied that the proposal had been floated by Brown as a pre-election stunt. It was "a question of fairness," Darling said. "I think people will be quite rightly say you should be looking at how these institutions make a contribution in the future."

Brown's move took commentators by surprise because in the past the Tobin tax has tended to be seen as the preserve of leftwing idealists. Mainstream politicians have often dismissed it as unworkable and when Lord Turner, the chairman of the Financial Services Authority, came out in favour of the idea in the summer, the Treasury did not offer its enthusiastic support.

But Brown's aides pointed out today that the prime minister was at the G20 summit in Pittsburgh, where world leaders agreed to commission the IMF feasibility study into a global banking tax.

The prime minister also refuses to accept that the idea is unworkable. One aide pointed out today that policies like the bank bailouts and the payment of debt relief for developing countries show how ideas initially dismissed as impractical can eventually attract international support.

While the government insisted that that there was still some prospect of Brown's plan being implemented, the Tories claimed that it was dead and that the affair showed Brown would do anything for a "cheap headline".

Mark Hoban, the Conservative Treasury spokesman, said: "Gordon Brown used to boast he was leading the world out of recession but we're the only major economy lagging in recession and his ideas are being shot down by the international community before they have even got off the ground."

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