Reality Check: How would Green transaction tax work?

As part of its election manifesto, the Green Party says it would introduce a "Robin Hood tax" on transactions involving shares, bonds and financial contracts called derivatives.

Traders would pay a fee each time a transaction takes place.

The party said it would replace the existing stamp duty on deals involving shares. A transaction tax could raise £20bn a year for the Exchequer and help stabilise markets, the Green Party said.

The idea of taxing financial transactions is not new. Sweden introduced a similar tax in the mid-1980s but subsequently abandoned the measure after many trading companies left the country. The European Commission tried to introduce a transaction tax in 2011 but failed in the face of opposition from several EU countries, including the UK. A smaller group of member states - including Germany, France, Spain and Italy - is trying to take the project forward among themselves but have not yet reached an agreement.

A transaction tax could raise considerable amounts of money and some say it has the potential to make financial markets less volatile because, for example, it might deter high-volume, short-term, speculative trading. It's also been argued the City should pay more following its role in the financial crisis.

Opponents say that the tax could threaten London's success as a financial hub, as companies would relocate elsewhere to avoid higher charges. And there are fears that any additional costs to financial companies would be passed onto consumers. There is also a view that any financial benefits would be dwarfed by the costs of a weaker economy that could result.

When the measure was put forward at an EU level, the UK was part of a vanguard of countries to defeat the motion. Britain even took the European Commission to court to challenge the legality of such a tax, although it was unsuccessful.

We have yet to see any detail about the Greens' proposed measure. While there are precedents that could help policymakers looking to develop a transaction tax, a UK government seeking to do so would face strong resistance.

Election 2015 - Reality Check

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