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New UK Shadow Chancellor steps in global debate on tax

The newly appointed UK Shadow Chancellor John McDonnell has proposed a series of tax reforms in an effort to balance the books, in the back drop of international scrutiny on tax avoidance and tax evasion.

McDonnell has used the Labour party conference in Brighton to push for a Robin Hood tax on stock market trading in the City of London.

Chancellor of the Exchequer George Osborne did not support the levy during the last Parliament, claiming such a measure will impede the recovery of the UK economy and deter international investment.

However McDonnell has said the Robin Hood tax - or financial transaction tax (FTT) - will pay for key public services; redress tax evasion and keep risky banking activities at bay.

The levy proposed during the last Parliament (0.01%) had been aimed at shares, bonds, and derivatives across the whole EU, and to prevent speculative trading. The levy, commonly referred to as the Robin Hood tax as its basic principle is to take from big business and give back to the wider public, has also been cited as a way for banks to repay governments for their financial crisis bailouts.

Speaking to The Accountant, Institute of Chartered Accountants in England and Wales tax faculty manager Ian Young, said FTT is a "nonsense" and it will not have any impact on tax planning or tax evasion.

"FTT is irrelevant to tax planning. It may seem attractive but in reality it does not have any impact," he said. "Unilaterally [FTT] will be very difficult to achieve. London is a major financial district and accounts for around one third of all transactions taking place in Europe. So if we did introduce the FTT, it may seem like a small charge, but actually it will have a very negative effect on international business."

However the UK Shadow Chancellor has confirmed the Robin Hood tax is 'Labour Party policy on the basis of if we can introduce it globally'.

"What we are saying is today (Monday) we are going to launch a review of our taxation system, we are going to bring the greatest economic minds in the world to bear on that issue, we are going to consult with the British people and then we will arrive at a decision on the way forward."

McDonnell has used his first big speech as Shadow Chancellor to campaign for a radical rework of the economy, including the culture and methods HMRC uses to claim back money lost to fraud, avoidance, evasion, and error.

Specifically, McDonnell has highlighted the £93bn of tax subsidies to corporations compared to an approximate £120bn tax gap as reason to look into the wider tax landscape. However McDonnell has denied there will be hikes in the future, while suggesting FTT can fill the void and claim back £25bn of uncollected taxes in the UK, enough to waive social austerity.

Yet the ICAEW's Young has criticised McDonnell's claims, saying governments around the world are already addressing the tax problem and proof of this will be seen when the Organisation for Economic Co-operation and Development (OECD) publishes its second set of recommendations to close tax loopholes in its Base Erosion Problem Shifting (BEPS) report.

Young has also said FTT will not do anything to redress inefficiencies in the tax system and accounting profession, as this sort of goal requires the recalibration of global financiers- a feat too difficult to implement, according to Young.

Yet research from Professor Stephany Griffith-Jones, an economist who has advised the European Commission, United Nations' agencies, and the World Bank, shows $38bn had been raised in 2011 alone by FTTs in the 40 countries that have them, including Brazil and India.

While no detail has been given as to how future FTT policy under a UK Labour Government could pan out, 11 EU countries already have agreed in principle to an FTT policy (Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia). This suggests that other pro FTT supporters could join forces and attempt to create a stronger global consensus on the matter.

Moreover McDonnell has used a slew of media interviews to suggest his party wants access to financial models the Bank of England and Office for Budget Responsibility uses. This will help the Labour party calculate FTT rates and create a new economic plan, according to the UK Shadow Chancellor.

Labour has also used Monday's conference speech in Brighton to announce plans for a review into how HMRC collects tax from corporate and individual evaders, and has argued that tax breaks for big companies could be retained only if a review by Labour proves they are helping to recruit staff and bolster investment.

McDonnell has also announced a review into the Bank of England's mandate, so that the Bank can do more to accelerate growth rather than keeping inflation levels under 2%.

Yet the Shadow Chancellor has insisted previously the Bank of England will remain "independent".

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