Lords join fight against European ‘Tobin tax’
The controversial financial transaction tax (FTT) the European Union wants to see imposed has come under fire from an influential House of Lords Committee, who said it could cost 20 times more than it raises.
By Alan Tovey
8:49PM GMT 02 Dec 2011
The so-called “Tobin tax”, named after the economist who devised it, would see share and bond trades taxed at 0.1pc of their value, and derivatives hit with a 0.01pc levy.
France and Germany have led calls for the FTT to be imposed across Europe, claiming it would reduce the likelihood of a fresh financial crisis. However, Britain is opposed to the levy as it would hit the UK disproportionately hard because of London’s status as the world’s dominant financial centre.
The Government has said it would accept the tax – which the European Commission adopted plans for in September and wants to see introduced in 2014 – only if it were applied globally for fear of it driving business to countries where the tax was not in place.
Now the Lords’ European Union Committee has attacked the FTT, questioning its viability. In a letter to Treasury minister Mark Hoban, Lord Roper, the Lords committee’s chairman, said: “We note with concern the EC’s impact assessment concludes that the tax is likely to induce a loss in GDP between five and 20 times larger then the revenues raised.”
In his “state of the union” speech in September, EC president Jose Manuel Barroso said the FTT could raise £50bn a year and was necessary for the “financial sector to make a contribution back to society”.
However, the Lords committee said it “remained to be convinced such a tax would reduce instability in the market or prevent another financial crisis”.
The committee also had concerns over proposals that revenues from the tax could go to other EU governments. This is because the FTT would be levied depending on where parties in the transaction were based, rather than where the transaction took place. With the majority of EU’s wholesale financial transactions taking place through London, this would mean the UK would lose out.
Lord Roper said an inquiry had been launched to investigate the committee’s concerns, which included fears that if Britain used its power to veto EU legislation it could be brought in through closer co-operation better European nations.