French and German plans to introduce a Financial Transaction Tax - also known as an FTT or "Tobin Tax" - would damage Britain's economy, even though the UK won't be forced to levy the tax on its own banks, according to the think-tank Centre for Policy Studies.
The CPS argues that the City of London would be damaged by the tax because UK branches of French and German banks would have to impose the Tobin Tax on all their transactions, making London's financial hub less competitive overall.
The CPS report - authored by international tax expert John Chown [PDF] - concludes: "Even subsidiaries of German and French financial institutions could be affected if it were shown that the risk in any transaction had been passed back to the parent company."
France has already indicated that it will impose a Tobin Tax, and Germany is said to be considering one. The UK has vetoed such a tax, and is able to do this because it is not part of the stabilisation measures vetoed by David Cameron in December.
The CPS is urging David Cameron "uses every possible method to ensure that a Tobin Tax is not introduced at any level in the EU."
The Tobin Tax is so-called because it was first suggested in the 1970s by the American economist James Tobin, who called for the levy to stop risky speculation on the financial markets. Sweden has attempted to introduce the tax in the past - as has France. But the French u-turned on the policy a few years later.
The thrust of the report will be welcomed by the Treasury, which has similar views on the Tobin Tax. Earlier this year Treasury Minister Mark Hoban warned that it would be potentially damaging to Europe's economy and would serve very little practical purpose.
However the report appears to contradict David Cameron, who has suggested in the past that the UK could benefit from such a tax within Europe. Boris Johnson has also appeared to cheer the French policy, suggesting the country's banks should relocate to London.
John Chown also believes that the Tobin Tax would not do anything to curb "undesirable financial activity" in any case, and that while it has been designed to be a levy on bankers, it would only pass the burden on to pensioners, employees and consumers.
The CPS report also claims: "Any legislation for an FTT (whether on an EU-wide basis or within a set of member states) will be enormously complex; and will be subject to many years of legal dispute (which would probably have to be settled at the ECJ). The resulting uncertainty could only be severely damaging to the UK financial services industry."
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