EU Commission Proposes Tax On Financial Institutions, But UK Indicates It Will Veto

EU Commission Proposes Financial Tax, But UK Indicates It Will Veto

The European Commission has formally proposed placing a financial transaction tax (FTT) on EU members.

The tax would levy 0.1 per cent of every financial transaction when at least one party is based in the EU. Derivative contracts would also be taxed, at 0.01 per cent.

The tax will "ensure that the financial sector makes a fair contribution at a time of fiscal consolidation in the member states", the European Commission said.

Financial firms are "under-taxed" compared to other sectors, it argues, and the "significant additional revenue" would be a boost to public finances.

The announcement was made as commission president Jose Manuel Barroso said that the EU faced its "greatest challenge" in his annual state of the union address to MEPs.

Speaking in Strasbourg, Barroso said: "In the last three years, member states have granted aid and provided guarantees of 4.6 trillion euros (£4 trillion) to the financial sector. It is time for the financial sector to make a contribution back to society."

He added that the commission would clamp down on tax avoidance.

"It is not only financial institutions who should pay a fair share. We cannot afford to turn a blind eye to tax evaders. So it is time to adopt our proposals on savings tax within the European Union. And I call on the member states to finally give the commission the mandate we have asked for to negotiate tax agreements for the whole European Union with third countries."

"Further changes to the Treaty of Lisbon" might be needed to implement measures to reforge the economy of Europe, Barroso said.

The new measure is expected to raise around £50 billion a year from 2014, but it has been opposed by some countries - including the UK.

Some officials in the City of London have said that 80 per cent of all the revenue from the tax would come from London.

Chancellor George Osborne has said that he would not agree to the new tax unless other countries outside the EU also imposed it.

"I am against an EU tax," Osborne said earlier this month. "There would be no point introducing a financial transaction tax that led, the next day, to our foreign exchange markets moving to New York or Singapore or anywhere else."

The Treasury told the BBC that "we would not do anything that is not in the UK's interests".

Professor Philip Booth, editorial director at the Institute of Economic Affairs, warned that the tax was "grossly unfair" as its impact "would be felt far harder in London than anywhere else in Europe”.

“A tax on transactions is ultimately a tax on banks' customers," said Booth. "It will make banks less efficient and banking services more expensive. Furthermore, a tax on bank transactions will lead investment business out of the EU and lead banks to develop more complex ways of hiding transactions.

"The volume of banking transactions neither caused the banking crisis nor the sovereign debt crisis. EU leaders need to be resolving the latter if we are to avoid another financial crisis worse than that of 2008."

However, the Trade Union Council welcomed the announcement of what it called the "Robin Hood Tax".

In a statement General Secretary Brendan Barber said:

“This is a major step forward and I urge the British government to support it. An FTT would provide much needed revenue for tackling climate change, global poverty and cutting public sector deficits.

“It would also help rebalance the economy, address the under-taxing of the financial sector, and reward long-term investment.”

The commission has said that if the UK vetoes that tax it will implement it in the eurozone.

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