Financial Transaction Tax Could Be 'Destructive' Says Mark Hoban
Treasury minister Mark Hoban has made an interesting revelation during his evidence to a Lords committee on a Financial Transaction Tax (FTT), saying introducing one in any country could be "destructive".
Although he reiterated the government's position that it favoured a tax so long as it was introduced globally, towards the end of the session he told peers that while the rates being mooted of 0.1 percent sounded low, the profit margins on such transactions were quite low as well. "So it can be quite destructive," he concluded.
He also questioned assumptions that the financial services industry was under-taxed, saying he was: "not really quite sure what people mean," in making that claim.
His comments come as a timely intervention after the French president Nicolas Sarkozy announced that France would be unilaterally imposing a financial transaction tax, without waiting for agreement from other members of the eurozone.
David Cameron has criticised France for going it alone, but suggested the UK might benefit if Sarkozy proceeded. He was backed up by Boris Johnson, who said French banks should move to London to escape the tax.
But the Mark Hoban appears to be more openly hostile to the concept in general, saying he had "some skepticism about what it is meant to achieve."
Hoban told the committee that the government had no objection to an FTT, but said: "If there was an EU-only FTT then business would transact outside the euro area ... this would be a very unwise thing to do."
However to some laughter he added that: "Sweden went through the process of introducing an FTT and it helped the Danish and UK economies," before pointing out that France had a similar tax to the FTT, which the country abolished four years ago.
Hoban said he doubted whether a eurozone-wide FTT was inevitable, saying that "plenty of people", including financiers in Ireland and Luxembourg, would not appreciate the tax at all.
"One needs to step back and look at who is arguing for a transaction tax and why," he argued, adding that there was no guarantee that an FTT imposed in the UK would be spent on overseas aid. He was clear that any FTT would not be spent on supplementing the EU budget.
Hoban added that there had been lively discussions both at the Treasury and within Europe over the notion of residence and incorporation.
The Treasury's position appears to be that if there were an FTT applied in eurozone countries, banks with unincorporated branches in those countries would not have to pay the FTT. But Hoban said: "If a German bank is incorporated in UK then tax is payable on "both" legs of a transaction. But how you collect that is a challenge."
"The complexity of this tax does require careful consideration," he concluded.