Giants of finance join to stop EU’s transaction tax

Tim Wallace
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GEORGE Osborne’s campaign to stop the financial transaction tax (FTT) was boosted by top City business groups and by new support from Luxembourg yesterday.

Eleven countries are implementing the charge which will hit all transactions involving parties in the countries or instruments issued there.

The chancellor is mounting a legal challenge to the plan as the FTT will hit London hard despite the UK not taking part, because the City is Europe’s major financial hub.

His worries were backed up by a new report from investor group ICI Global which fears the impact of the tax on regular trades like repos.

Repos are transaction agreements where banks sell securities to investors overnight, buying them back the next day – the FTT would take 0.1 per cent from every trade.

The impact on US money market funds alone could hit $35bn (£22.9bn) per year, ICI Global warned.

“Proponents claim the proposed tax would hardly affect market participants. But the opposite is true,” the report said.

“The tax likely would work to eliminate repo as a source of funding to affected financial institutions, particularly French and German banks.”

The states backing the tax claim it will make banks pay for the recession.

But the UK’s Investment Management Association (IMA) warned the costs will simply hit savers.

“The FTT is not a tax on financial companies but on investors and pension savers including those in the UK,” said the IMA’s Julie Patterson.

“Even though the UK has opted out of charging the FTT, our clients will still have to pay it if they buy securities or deal with counterparts from any of the participating states.”

And TheCityUK warned it would drag on the economy as a whole.

“The FTT will undermine the competitiveness of the EU, making it less attractive for business and reducing trade and investment.,” said campaign chief Chris Cummings.

Osborne is no longer alone in fighting the tax with his legal case emboldening Luxembourg to come out against the charge.

“We are very sympathetic to the stance of the UK,” finance minister Luc Frieden told the City Week conference.

“We will certainly bring our support to the case that has been started in the European Court of Justice.”