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George Osborne's bid to save UK banks from an EU tax on their financial transactions by having it deemed illegal has been struck down by the European Union's top court.
The European Court of Justice today announced that it rejected the UK Treasury's legal challenge against the implementation of the financial transactions tax (FTT), better known as the Robin Hood tax or Tobin tax, which has been agreed by 11 eurozone member states.
The Treasury fears that the tax would damage the City of London in a knock-on effect if it was implemented, with the tax hitting financial transactions at a rate of about 0.05% in an arrangement that is estimated by supporters to raise around £238 billion.
The ECJ threw out Britain's challenge as it concluded that the details of the tax have not been finalised yet, saying in a statement: "The Court dismisses the United Kingdom's action.
"The Court finds that the contested decision does no more than authorise the establishment of enhanced cooperation, but does not contain any substantive element on the FTT itself."
Chancellor George Osborne's spokesman told the Financial Times that the government would still challenge the European Court of Justice's decision, saying: "We are confident we will be able to get an outcome which would protect the single market and non-participating member states."
Ben Jones, a tax expert at law firm Eversheds, says the UK is likely to challenge the European Court's ruling.
"The Court’s rejection of the UK’s challenge was anticipated but, from the details currently available, should not prevent a further challenge being raised by the UK if necessary," he said.
"Reading between the lines of the Court’s initial statements, the UK’s challenge has failed at this stage since the substantive features of the FTT have not yet been finally determined, meaning the Court cannot rule on whether EU law would be breached by its introduction.
"The UK should have another opportunity to challenge if its problematic features, such as its extra-territorial effect, remain in the final form of the tax."
In response to the ECJ's decision, David Hillman, spokesperson for the Robin Hood Tax campaign, said: "George Osborne has gone to Europe to bat for the bankers, but he's been bowled first ball.
"This futile legal challenge tells you all you need to know about the Government's misguided priorities: it would rather defend a privileged elite in the City than support a tax that could raise billions to tackle poverty and protect public services.
"Instead of trying to stop other countries taxing their financial sectors, our Government should follow their lead, stand up to vested interests and harness the City's excessive wealth for the wider benefit of society. Complaining that the City will be hit by a European FTT is a clear case of double standards - almost half of the £3bn revenue from our own FTT, the stamp duty on shares, comes from non-UK residents."
Mark Boleat, policy chairman at the City of London Corporation, said: “The FTT is a damaging tax that would have a negative impact across Europe and which was shown to be a categorical failure in countries which have previously implemented it, such as Sweden.
"Regardless of the outcome of the court’s judgement, the UK government is absolutely right to fight for an effective fiscal policy that maintains a level playing field for all EU member states, including both those inside and outside the Eurozone bloc. The UK’s economic recovery should not be stalled by a £3.6bn tax on British household savings.”
The defeat comes just months after Britain's legal bid to fight the European financial watchdog's new power to ban short selling was thrown out.
In February, HuffPostUK revealed that Osborne had spent over £20,000 on fighting the EU bank bonus cap.
The government justified its legal challenge as it argued the EU bank bonus cap, which came into force this January, would end up making the finance sector less competitive.