REPORTS that the planned European Financial Transaction Tax (FTT) is being overhauled indicate policymakers are finally recognising the potential economic damage this measure could cause.
The tax is now expected to be implemented more slowly than previously suggested, the annual levy reduced, and its scope narrowed to affect equities only. These changes will help to address serious concerns over the extraterritorial nature of the FTT. It also means the tax could now resemble Britain’s own stamp duty, and be collected through domestic exchanges and clearing houses.
This overhaul is to be welcomed, even if it is not entirely unexpected, coming as it does in the wake of widespread global criticism. Notably, last week France’s central bank governor Christian Noyer warned that the FTT could “destroy” parts of the country’s banking industry.
This ongoing debate demonstrates that the UK is far from alone when it comes to opposing the FTT. Sir Mervyn King has already stated that he could “not find anyone within the central banking community who thinks it is a good idea”, while Denmark, Bulgaria and Luxembourg among others have also outlined their objections to the tax.
It is fitting, therefore, that I am currently in Sweden with the lord mayor on a visit to strengthen financial ties between our two countries.
Sweden, more than other countries, understands the limitations of a FTT, having abandoned its own transaction tax in 1991. The country saw the vast majority of its trading activity shift from Stockholm to London when the tax was first introduced on equity securities, fixed income securities and financial derivatives in the 1980s.
In its original form, the FTT would simply have taxed growth away from Europe to more competitive regions. As Europe’s financial capital, London would have been hit disproportionately by this measure, so it is vital we work to engage European policymakers to raise awareness of how it would affect governments, savers, investors and businesses across the continent.
That is precisely what I will be doing during my visit to Berlin later this week. It is helpful, therefore, that a number of German blue-chip companies – including Siemens and Bayer – have already placed on record their concerns over increased costs posed by the tax.
Of course, Chancellor Angela Merkel’s Christian Democrats are unlikely to abandon the prospect of a FTT until the German national elections are out of the way in September. But it is important the City outlines its position to European policymakers so that they understand we are open to a constructive dialogue.
As European Central Bank President Mario Draghi said at Guildhall recently, “Europe needs a more European UK as much as the UK needs a more British Europe.”
Mark Boleat is policy chairman at the City of London Corporation.