A financial transactions tax (FTT) can be used to shift the incentives financial firms face when deciding on their trading strategies. In particular, such taxes can disincentivise high-frequency trading, which is associated with rising volatility in financial markets.
FTTs can also generate significant revenue. At least forty countries already have taxes on financial transactions of one kind or another, including the UK where stamp duty acts as a form of FTT on trading in equities. It was estimated in 2017 that a modest extension of a FTT in the UK could raise an estimated £23.5 billion over the course of a Parliament.
Financier Avinash Persaud proposes a financial transactions tax for the UK, extending the current stamp duty on shares.
The Brookings Institute assesses proposals for the introduction of a FTT tax in the US, noting that it would be overwhelmingly paid by the most well off in society. The Institute on Taxation and Economic Policy argues that FTTs can curb inequality, improve markets, and raise “hundreds of billions of dollars” over a decade.
The kinds of FTT used in different jurisdictions are explored in this report by BNY Mellon.
One of the most persistent criticisms of corporate behaviour has been of the high levels of pay and share options by which company executives are often remunerated. Since 2000 the average earnings of workers in the UK have increased by about 3% a year, but the pay of FTSE 100 executives has grown by around 10% a year. The average FTSE 100 CEO is now paid 126 times as much as the average UK worker, compared to 58 times in 1999.
In principle executive pay should be based on company performance, but the evidence is that there is little or no relationship between them. Indeed, the widespread use of share option incentive schemes, in which executives are rewarded for increases in the value of company shares, has been criticised as an incentive for directors to focus on short term returns rather than long term investment. Various reforms to pay structures to incentivise long-term performance, and benefits to employees and other stakeholders, have been proposed.
Listed companies in the UK with over 250 employees are now required to report on the ‘pay ratios’ between their highest pay rates and their lowest and median pay. There are now calls for this to be extended to privately-owned companies, for more information to be disclosed about higher earners, and for the information to be better disseminated to company employees. Some have proposed a ‘maximum wage’, an upper limit on allowable executive pay, with the money saved redistributed to lower income workers in the company.
The High Pay Centre analysed the first disclosure of UK company pay ratios in 2019-20. Across FTSE 350 companies they found the average CEO was paid 71 times as much as the lower quartile (the pay rate a quarter of the way up the earnings distribution). For the FTSE 100 the ratio was 109:1.
Analysing CEO pay incentives, CIPD and the High Pay Centre find that incentives to deliver shareholder returns are, on average, worth 42 times the value of incentives linked to good employment practices.
CIPD and the High Pay Centre recommend the inclusion of worker representatives on remuneration committees to encourage reform of executive pay.
The Purposeful Company argues for ‘deferred shares’ to replace typical incentive schemes in executive remuneration packages, rewarding long-term company performance.
Autonomy has examined different options for a maximum wage, showing how much money could be redistributed to lower income earners if executive pay were capped and the potential public support for such a policy.
Over recent years there has been a huge increase in the number of companies and financial investors committing to ‘ESG’ principles, under which they aim to achieve not just profit and financial returns but better environmental and social impact and corporate governance. Globally, assets classed as ‘ESG’ were valued at over $30 trillion in 2018, an increase of a third on 2016. ESG investment funds have consistently outperformed the average, and there is strong evidence that an attention to ESG can improve shareholder returns.
ESG principles commit companies and investors to assessing their performance through the ‘triple bottom line’ of ‘people, planet and profit’ (sometimes known as TBL or 3Ps). But there is no universal agreement on the specific standards of behaviour which define ESG, or the metrics which should be used to measure performance. With so many different criteria used by ESG investment funds, critics argue that too many allow for ‘greenwashing’ of companies with unsustainable and socially damaging impacts.
When the US Business Roundtable released a statement in 2019 arguing that US businesses should be committed to a broad range of stakeholders – including customers, employees, suppliers and communities as well as shareholders – this was widely interpreted as a significant shift in business philosophy. But others argued that ‘stakeholder capitalism’ in practice looked insufficiently different from shareholder capitalism. Activist investors, both corporate and individual, are increasingly seeking to hold businesses to account in order to raise ESG standards.
Reviewing the evidence, consultants McKinsey find that business ESG strategies are positively correlated with financial performance and explain how they can contribute to growth, cost reduction and productivity improvement.
The Principles of Responsible Investment are a set of guidelines on how financial investors should incorporate ESG issues into their investment analysis and decision-making. With 3000 signatory companies, the PRI organisation promotes responsible ESG investing.
Seeking to provide standard measures of ESG performance, the World Economic Forum has published a set of ‘stakeholder capitalism metrics’ to enable companies to report consistently on their long-term ‘sustainable value creation’.
Author of the original concept John Elkington argues that 25 years on the ‘triple bottom line’ needs rethinking: environmental sustainability requires greater radical intent to stop the overshooting of planetary boundaries.
Analysing the rise of ESG investing, Common Wealth shows that ESG funds can include companies with both environmentally and socially damaging impacts, and argues for much stricter criteria and their incorporation into the fiduciary duties of shareholders.
Activist investor groups, such as Share Action, CDP and Ceres seek to use the power of individual shareholders and fund managers to influence the behaviour of companies and to improve their reporting of environment and social impacts.
Burning fossil fuels can have economic, environmental and social costs. It is widely considered fair and efficient to require energy users to bear some of these costs.
Carbon and other environmental taxes also encourage more efficient use of energy and resources, reducing environmental impact. Under the EU’s Emissions Trading Scheme, carbon emissions from the power and industrial sectors are effectively taxed, though not at a very high rate.
Petrol and diesel are taxed more highly, but these taxes have been frozen in the UK in recent years. Aircraft fuel is not taxed at all. There is a strong case for a more comprehensive system of carbon taxation.
Taxes on consumption are regressive, with poorer consumers tending to pay more as a proportion of their income. Carbon and environmental taxes need to be carefully designed to ensure that they are perceived as fair.
Common Wealth and the New Economics Foundation set out principles for green tax reform. They argue we must focus on rapid decarbonisation, addressing inequalities, and global solidarity.
The Grantham Institute at Imperial College London has designed a framework for fiscal reform for climate action, including tax reform. It argues that the public may be more prepared to pay higher taxes if it is earmarked for specific green investment.
Tax Justice UK, along with a range of partners from the Green Alliance to Greenpeace and Oxfam, have outlined a set of principles for reforming the UK tax system to help achieve net zero goals. Watch their video webinar chaired by Caroline Lucas here.
A survey for Green Alliance found ‘unequivocal’ public support for green taxes such as carbon taxes and greening the VAT system. The authors hope the report “gives Government a mandate to start to green the tax system through Treasury’s imminent Net Zero Review.”
The modern debate about economic growth first kicked off in 1972, with the publication of the influential Limits to Growth report by the Club of Rome.
The argument of the report was that exponential growth of production and consumption could not be sustained over the long term due to the finite resources and absorptive capacities of the Earth’s environment.
In the half century since then global environmental degradation has greatly worsened, with climate change, soil depletion, deforestation, ocean pollution and the loss of biodiversity all at critical levels.
This has led environmentalists and environmental economists to revisit the question of whether economic growth can be environmentally sustainable.
Asking ‘can we have prosperity without growth?’, John Cassidy surveys the various players and arguments in the growth debate.
In a report for the All Party Parliamentary Group on Limits to Growth, Tim Jackson and Robin Webster revisited the 1972 Limits to Growth report. They found that its predictions appear to be essentially still correct and that new understandings of planetary boundaries have added new dimensions to the challenge.
A 2012 report by the Institute of Actuaries and Anglia Ruskin University found strong evidence of resource constraints to economic growth, with serious economic and political implications.
Writing on Columbia University’s Earth Institute blog, Steve Cohen argues that economic growth and environmental sustainability can be made compatible through the use of human ingenuity, enlightened design and cutting-edge technology.
The impacts of the environmental emergency fall unequally between countries and across communities. Often the people who contributed the least to environmental destruction are most harmed by the consequences. This makes environmental issues inseparable from wider questions of fairness and inequality.
The idea of a just transition has become central to the cause of environmental justice. This means ensuring the process of reducing environmental damage also provides jobs and opportunities for those working in environmentally-destructive sectors and their communities.
Wealthy countries could support poorer countries to reduce their environmental impact and compensate them for the environmental damage that they have experienced as a result of past exploitation of resources.
While people in poverty are responsible for just a fraction of global emissions, they bear the brunt of climate change and have the least capacity to protect themselves. The UN warns that this could "undo the last 50 years of progress in development, global health, and poverty reduction".
A major international NGO coalition - the Civil Society Review - has called for loss and damage funding from rich countries to compensate less industrialised nations in the wake of destructive climate impacts. It calls for up to $300 billion to be transferred by 2030.
The New Economics Foundation highlights the lack of trust among deprived communities, who often do not believe that green industrial change will be good for them, and argues that a just transition approach to climate policy is therefore not optional.
The majority of new epidemics have zoonotic origins. This means they are caused by germs spreading from animals to humans.
Rising global demand for meat and dairy products are fuelling the destruction of forests and habitats, pushing wildlife into ever-closer proximity to people.
The extensive use of antibiotics in intensive farming is reducing their effectiveness, while climate change is also increasing the spread of animal-born diseases and displacing people into new areas that may already be densely-populated.
The United Nations Environment Programme and the World Health Organisation have concluded in their report Connecting Global Priorities: Biodiversity and Human Health, that most emerging infectious diseases are driven by human activities.
Chatham House interviews experts on how the destruction of nature is making outbreaks like Covid-19 more likely and outlines how protection of the environment is crucial in preventing new disease outbreaks.
The UK faced multiple economic challenges even before the onset of the Covid-19 pandemic.
Business investment as a proportion of national income is the lowest in the G7, which helps explain the country’s poor productivity performance. The UK’s manufacturing sector is now under 10% of GDP, contributing to a large structural trade deficit. The UK has some of the largest income and regional inequalities in Europe.
The UK has also become a highly financialised economy, in which the financial sector's growth has outpaced the rest of the economy in recent decades.
One of the arguments often made is that investment and innovation are discouraged by the UK's system of corporate governance, in which the short-term interests of shareholders tend to take precedence over those of other stakeholders. Coupled with low levels of public investment, this has undermined long-term wealth creation in the economy.
Britain has had a relatively good record of jobs creation. But many of those created are low-wage and low-skill. Many workers are now on temporary, part-time or zero-hours contracts with fewer rights and benefits than full-time employees.
Cheap labour and flexible labour markets can discourage firms from making the investments in training or equipment needed to raise productivity. Both the decline of trade union membership and the casualisation of work have undercut workers' bargaining power. One result is the near-stagnation of average real wages since the 2008 financial crisis.
The IPPR Commission on Economic Justice, whose members included leaders from business, trade unions, civil society and academia, conducted a two-year enquiry into the condition of the UK economy. Its final report Prosperity and Progress calls for fundamental reform, setting out a comprehensive ten-part plan with over 70 policy recommendations.
The New Economics Foundation analyses the structural failings of the UK economy in three dimensions – environmental breakdown, social services, and people’s sense of a lack of agency and power. It proposes a comprehensive set of reforms to 'change the rules'.
The LSE Centre for Economic Performance analyses the dramatic variation in economic outcomes in different parts of the UK, before Covid. The report concludes that both more investment and greater local control of it are required in disadvantaged areas, along with benefit uplifts to raise household incomes.
Scotland, Wales and Northern Ireland all have different forms of devolved powers. Each of the devolved governments is seeking to expand its programmes for economic development activities, even though most economic powers are reserved to the Westminster government. Both Scotland and Wales have established national development banks to support their economic investment strategies. (See Stakeholder Banks.)
In England local authorities have some economic development powers but many argue that the geographic scale of government needs to be larger. Since the abolition of the Regional Development Agencies in 2010 semi-independent Local Economic Partnerships (LEPs) have been tasked with supporting business development, but these have widely criticised for inadequate powers, funding and democratic accountability.
Where they have been established, combined authorities and city mayors are developing economic strategies at the 'city region' level; all argue that they need more powers and greater resources to do this properly. Some have called for the creation of larger regions in England comparable to those generally found in other developed countries. But the issues of regional identity and democratic control remain a source of debate.
IPPR’s proposals for an industrial strategy for the North of England have at their core more pan-Northern collaboration in transport, trade and investment, innovation and more. It separately argues for decentralisation of power in England and calls for a new constitution that would permanently reform central-to-local relationships.
Nesta argues for a much greater role for Metro Mayors in leading local strategies that are the core to national recovery. It suggests that this will require greater resources from national government as well as local leadership from Mayors to convince local people that “local politics is something worth caring about”.
Former banker and Tory minister Lord Jim O’Neill argues that city-region mayors must be given greater powers if the Government’s ‘levelling up’ agenda is to work.
The Centre for Local Economic Strategies (CLES) proposes three "central tenets to reshape local economic development in the UK… devolve, redirect, democratise”. The authors give a history of regional inequality and English devolution, and argue that 'levelling up' will require constitutional change, rather than "top-down tinkering".
Harvard University’s Growth Lab's Metroverse is a data visualisation tool comparing the local economies of different cities.
For some environmentalists and economists ‘green growth’ and ‘inclusive growth’ are mirages. The root problem in our economy and society, they argue, is the obsession with economic growth. Exponential growth cannot be achieved within the earth’s planetary boundaries, and cannot satisfy human needs.
‘Degrowth’ is the term increasingly used for strategies which seek a deliberate and planned contraction in the economies of high-income countries. Proponents argue that reducing the throughput of materials and energy can be achieved at the same time as maintaining and even improving people’s standards of living. As unplanned recessions exacerbate inequality, a central tenet of degrowth proposals is to ensure social justice by equitably sharing out resources, and reducing consumption and income by reducing working time.
Proponents of the idea of a ‘steady-state economy’ or ‘prosperity without growth’ argue for an economy in which environmental resources and absorptive capacities are sustained at an ecologically healthy level. This will require a contraction in the current size of high-income economies.
Economist Tim Jackson, author of Prosperity Without Growth, explains the economic and scientific ideas underpinning ‘growth scepticism’, based on the pioneering work of economists Nicholas Georgescu-Roegen and Herman Daly.
Economist and author of Degrowth Giorgos Kallis argues that degrowth is not about implementing a better or greener form of development but ‘an alternative vision of a prosperous and equitable world without growth’.
Anthropologist Jason Hickel explains the economic logic of the degrowth idea, arguing that it could lead to ‘radical abundance’. He defines degrowth as being at core about equality, with a focus on the progressive redistribution of existing income.
Friends of the Earth Europe collects a series of essays on the idea of ‘sufficiency’, where a cap on material resource consumption would be achieved through equitable distribution and sustainable lifestyles.
Leigh Phillips argues against what he calls ‘the degrowth delusion’. He identifies environmental degradation as arising from market capitalist economies and describes degrowth as ‘an end to progress’.
