THE FINANCIAL Transactions Tax (FTT) will hike sovereign and business funding costs, meaning George Osborne could be forced to raise £4bn more through tax hikes or spending cuts, according to new figures released today.
Unlike the UK’s existing Stamp Duty Reserve Tax, the proposed European scheme is levied on every single step and intermediary in a transaction, meaning that the 0.1 per cent securities tax will balloon into a one per cent tax, research by the City of London Corporation shows.
This would drive up the cost of finance across the EU, the data showed, adding as much as £3.95bn onto the UK’s debt costs in the year, potentially driving yet another stake into the chancellor’s deficit reduction plans.
Though the UK is opting out of the scheme, along with the Netherlands, Sweden, and 13 other members, it will still be affected, the City of London Corporation said, as the levy applies to any transaction with at least one end inside in a participating state.
The scheme could hit already credit-constrained participant states such as Greece, Spain, Italy and Portugal, particularly, since every transaction – not just those inside the EU – will be subject.
Even worse could be the impact on investment by driving up the cost of business borrowing. A 0.2 per cent increase in the cost of funds could slash business investment by 1.8 per cent, wiping 0.5 per cent off GDP, the figures said. On their lowest estimate businesses will have to pay 0.23 per cent more to access funds.