THE government’s recent decision to launch a legal challenge to the proposed European financial transaction tax (FTT) has been supported widely in the City and beyond.
The extra-territorial nature of this tax, as proposed, means that many countries – including the UK – that are not planning to introduce it, would still be negatively affected. By no means is the UK isolated on this issue. Numerous EU member states have already voiced their objections to the measure, including Denmark, Bulgaria and Luxembourg among others.
Research published by the City of London Corporation demonstrated that it would push up the cost of capital for businesses and governments across the continent. In fact, it would add almost £4bn to the cost of issuing UK government debt this year alone.
In its current form the FTT risks seriously damaging economic prospects across Europe by making the region less competitive. It is vital, therefore, that in addition to the legal challenge, we also engage with policymakers from other countries to convince them that the tax is fundamentally flawed. Sweden, which abandoned its own transaction tax in 1991, has already pointed this out.
This was one reason why Mark Boleat, policy chairman at the City of London Corporation, and I visited Lithuania together ahead of the country’s impending presidency of the Council of the European Union as well as, separately, Poland and Estonia.
Understanding what agenda will be pursued through the course of the Lithuanian presidency, and feeding in the City’s thinking on EU regulation before it takes office, is a key part of our European engagement strategy.
Major issues on the table affecting the City include the proposed European banking union and MiFID – both of which the UK and Lithuania are closely aligned. As for the FTT, Lithuania is still weighing the economic case for the initiative before making a firm commitment. In discussions, it was clearly understood that the cost of this tax would ultimately be borne by consumers, investors and pensioners.
The UK needs to be fully plugged in to the legislative programme during Lithuania’s presidency. This means working with our European partners to make the case for maintaining a level playing field across an internationally competitive single market in order to promote growth.
As an international gateway, London is a financial capital for the whole of Europe and would be hit disproportionately by the FTT. The visit to our northern counterparts was intended to make it clear that the City takes a long-term view in ensuring that the financial services sector across Europe is fit to compete against strong rivals in Asia and the US. Then it can help to more effectively drive the continent’s economic recovery in the years to come.
Roger Gifford is lord mayor of the City of London.