Proposals for a Financial Transaction Tax (FTT) from the European Commission should not be agreed to by the Government, according to a report published today by the House of Lords EU Sub-Committee on Financial and Economic Affairs.
The House of Lords EU Sub-Committee on Financial and Economic Affairs say in its report that the FTT proposed by the European Commission is flawed and will fail to fulfil the Commission's own objectives.
The proposals place the City of London under severe threat and are likely to force financial institutions to relocate away from the UK and the EU as a whole.
Given the strategic importance of the City of London, such relocation would have a highly damaging impact not only for the UK but on the economic health of the EU as a whole. A proposal that would have such a disproportionate impact on the UK above all other Member States makes the Commission's proposals particularly unacceptable.
Whilst the Committee acknowledge the strength of public anger against the financial sector, the desire that the sector should contribute to the costs of the financial crisis, and the wish to use revenues to tackle global poverty and climate change, an FTT is the wrong way to meet such demands.
The Committee urge the Government to refuse to agree to the Commission's "wholly impractical and unworkable" proposals and report that:
- The Commission's Impact Assessment presents an alarming picture of the negative effect on the EU economy
- The Commission's argument that an EU-wide FTT would pave the way for a global tax is wholly unrealistic
- The risk that the tax burden will ultimately be passed onto consumers is not worth taking in the current economic context
- The 'residence' principle is unviable
In addition, the Government have stated that, whilst they oppose an EU-wide FTT, they have no objection to a global FTT. The Committee found the Minister’s explanation of this position unconvincing. If the Government’s true position is to oppose an FTT outright, then they should say so.
Commenting on the report, Lord Harrison, Committee Chairman, said:
"This is an issue that we just can’t afford to ignore. We've been disappointed in what we discovered when we examined the Commission’s proposals and found the model wanting in numerous ways. The Government should absolutely not agree to the proposals in their current form. There is huge uncertainty about the impact of any financial taxation proposal on the UK and the Government need to redouble their efforts to influence the debate.
Even if the FTT was only adopted by a small group of Member States, there would still be huge implications for the UK, not least because transactions between UK financial institutions and those within the jurisdiction of the FTT would still be liable for the tax. The Government needs to assess how we would be affected if the proposals are taken forward by some or all euro area Member States as a matter of urgency so that it can argue with conviction and contribute to the debate.
Whatever our opinions of these proposals, the debate on whether and how the financial sector should be taxed cannot be ignored. Whatever shape discussions take in the future, the implications for the UK are extremely significant".