We must resist a tax that isn’t FTT for purpose
AS THE European Parliament held its public hearing on the proposed financial transaction tax (FTT) on Monday, the battle positions were clearly drawn. For the Eurozone, an FTT represents a smallish subsidy to repair damaged national balance sheets; for the UK, the adoption of an FTT would represent a massive drag on the country’s economic performance.
It is obviously attractive to Germany to support an FTT because it would spare the EU’s largest economy the pain of having to bail out its fellow Eurozone members. It is attractive to France, Italy, Greece and others because they would rather take money first from the UK than ask Germany alone to pay for their burgeoning debts. And it is especially attractive to French President Nicolas Sarkozy because blaming the British in an election year might help him get re-elected. In short, the Eurozone wants an FTT for all the wrong reasons. It is a brazen grab for the riches of this City to bail out the rest of the continent.
The Global Financial Markets Association believes that an FTT on foreign exchange trading would directly increase transaction costs for all transactions by three to seven times and by up to 18 times for the most traded part of the market. This will have an immediate and direct affect on liquidity, with much speculative FX activity moving outside the EU, with the result that it would raise far less revenue than hoped for. It estimates that 70-75 per cent of tax-eligible transactions would move outside of the EU tax jurisdiction.
The people who would be hit by the tax are those in the real economy (pension funds, asset managers, insurers and corporates) as both direct and indirect costs are largely passed onto end-users, who will be least able to move transactions to jurisdictions not subject to the tax. Those who defend the FTT say it is a tiny amount being raised on each transaction. But Aviva’s figures show the cumulative effect over several decades could cost a typical pensioner upwards of £15,000.
The European Commission’s own impact assessment estimates that European GDP will be reduced by 1.5 per cent as a result of the tax, which some have calculated to mean a loss of half a million jobs across the EU. Other research claims the reduction in GDP would be larger. That matters little to those whom I meet in the European Parliament, who are clearly motivated more by avenging the apparent sins of bankers than by practical consideration of the consequences of their actions.
Brussels sees the City as a cash cow that it wants to milk as hard as it can for as long as it can. I hope Icap group chief executive Michael Spencer is right that there is “not a prayer in Hades” of the UK agreeing to the proposed European Union financial transaction tax. But I fear David Cameron will have to use his veto again and again.
If there is no let up in the barrage of new taxes and regulations being planned by the EU for our financial services industry, and especially while there remains no solution to the Eurozone crisis, we may hear many more voices in the City asking if it is worth remaining a member of the European Union at all.
Syed Kamall is MEP for London and a member of the European Parliament’s Economic and Monetary Affairs Committee (ECON).