ELEVEN EU countries were given the go ahead yesterday to start planning for a financial transactions tax (FTT) in an effort to squeeze more state revenues out of the sector.
The charge is expected to hit trading activity in the countries that adopt it, potentially pushing more business towards the City as the UK is firmly opposed to the levy.
Germany and France are leading the move to introduce the charge, which European Commission president Jose Manuel Barroso claims “can raise billions of euros of much-needed revenue for member states in these difficult times.”
“This is about fairness: we need to ensure the costs of the crisis are shared by the financial sector instead of shouldered by ordinary citizens,” he said when the plan was announced late last year.
The countries involved can now negotiate exactly how the tax will apply. It is likely to be based on earlier EC plans which envisaged a charge of 0.1 per cent of the value of any trade in shares or bonds and 0.01 per cent of derivatives contracts.
But the details are not certain – for example, whether the national governments will receive the revenues or the EU, and whether private pensions funds will be affected.
There are also legal obstacles for the negotiating nations to pass, as they are not allowed to create a tax which distorts the single market or which contravenes any previous treaty.
But investment groups and analysts argued the tax is likely to backfire, harming consumers and the economy.
“This is simply a cost to those wishing to invest in the countries which adopt the FTT,” said George Morley Smith from the Investment Management Association. “And it will not harm those it is purporting to target, just the savers and pensioners who are the beneficial owners.”
The UK is opposed to the tax, and is trying to ensure it will not affect foreign firms operating in Britain.
“The British government is well aware of the issues and will do their best to make sure that there is no adverse effect on financial services outside the ECP area,” said lawyer John Chown, noting that anything which harms those 11 countries as an investment destination makes London a more attractive location. “If it drives business away, it could prove to be good news for the City.”
What is the plan for this new tax?
Q and A
Q What is this planned financial transactions tax?
A The European Commission wants any trades of assets like shares and bonds to be taxed at a rate of 0.1 per cent. Derivatives trades would be taxed at 0.01 per cent.
Q Who does it affect?
A The EC wants all EU nations to sign up, but only 11 have so far – Germany, France, Spain, Portugal, Italy, Belgium, Greece, Austria, Slovenia, Slovakia and Estonia.
Q What if I do business with firms from those countries?
A The details are still to be worked out, but if the transaction is processed in those countries, you will probably be hit.
Q When will the details be finalised?
A The plan is to bash out a full plan by December of this year. But EU negotiations are famously slow, so this is a tough deadline.
Q How much will it raise?
A The EC claims it would raise €57bn (£47.9bn) per year if it was applied to all member states. But as it is missing out London, the total will be far lower – and will drop more if it drives trades overseas.