Warning over EU 'transaction tax'

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Euro sign outside European Central Bank, Frankfurt, Germany

Ministers have been accused of complacency over the threat to the City from plans by a breakaway group of EU member states to go ahead with a tax on financial transactions.

The House of Lords EU sub committee on economic and financial affairs warned that the imposition of the so-called "Robin Hood tax" could have a "significant detrimental effect" on all member states, whether or not they join up.

Although the Government has always made clear that Britain would not participate, the committee said ministers had been slow to wake up to the implications for the UK of an 11-member group, including France and Germany, going ahead with the financial transaction tax (FTT).

British financial institutions engaging in transactions with those in the participating member states would be liable to pay the FTT which would then have to be collected by the UK tax authorities on behalf of the member state, it said.
It warned the tax would be damaging to UK financial markets while London was unlikely to benefit from the relocation of financial activity away from the FTT zone, with the business more likely to go to centres outside the EU altogether such as New York, Hong Kong or Singapore.

But although the committee had sought to alert ministers to the dangers in a report last year, it said there had been little response from the Government.

"We detected over the following months a marked complacency within HM Treasury as to the potential deleterious impact of the tax on the UK," it said.

"It appeared to us that the Government had seriously underestimated the political will amongst the FTT's advocates to see the proposal succeed. The Government had also appeared to make the premature assumption that the FTT was doomed to failure."

The committee criticised the Government for only abstaining rather than voting against the plan when it came before a meeting of EU finance ministers last January.

It also criticised the European Commission for allowing the FTT to go ahead under the EU's "enhanced co-operation" procedures despite a warning by the European Council's legal service that it did not comply with the treaty requirements.

The committee chairman, Lord Harrison, said : "What we now have before us is a proposal to allow a breakaway group of EU countries to proceed with their own FTT, which would have a serious negative impact on the UK and other non-participants.

"In giving this the go-ahead we believe the commission has only paid lip service to the legal requirements for enhanced co-operation, and has failed in its duty to countries such as the UK who oppose the move."

"The commission has a duty to all 28 of its member states equally, and this sort of cavalier approach to legislation risks making losers of us all."

A Treasury spokesman said: " We have consistently said we will not participate in proposals for a Europe-only FTT, which we think would have a distorting effect on the EU financial services industry and a negative impact on economic growth.

"From an early stage, we have made our concerns very clear and taken strong action. In November 2011 the Chancellor highlighted the serious problems with the European Commission's original proposal to other EU finance ministers, and in April this year we lodged a formal legal challenge to protect our position in the ongoing negotiations."

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