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Osborne: FTT would raise no extra cash

Wednesday 21 December 2011 – by [email protected]

UK chancellor George Osborne has warned that the proposed European-wide financial transaction tax might raise “no additional money” for the UK Treasury.

Gains raised through the levy would be offset by losses in other taxes, including a £3bn per year fall in stamp duty, as firms migrate their trading away from London, Osborne said.

In a letter to the Parliament’s Treasury Select Committee chairman Andrew Tyrie, released on Wednesday, Osborne argues the FTT would also lead to a reduction in corporation tax payments from the financial sector as companies leave the country, resulting in a reduction in UK growth.

In addition, money raised from the FTT would have to be split with other EU member states if the trade was conducted with a firm situated in a different European country. “Overall, it is possible that the tax might raise no additional money at all for the exchequer,” he said.

In September, the European Commission proposed a 0.1 per cent tax on equity and bond transactions occuring in the EU, with a 0.01 levy enacted on derivatives trades.

Though the commission estimated the FTT could raise as much as €57bn a year, the UK remains vehemently opposed. The majority of trades occur in London, meaning that it could be disproportionately hit by any negative effects compared with the UK’s European neighbours.

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Osborne has previously argued that if the EU were to introduce the tax alone it would be “economic suicide”. Prime Minister David Cameron has likened the levy to asking the French to introduce a tax on wine given the importance of financial services to the UK economy.

Even coalition partner Vince Cable, who serves as business secretary, has withdrawn his support for the FTT.

The UK’s support is vital to introduce an EU-wide FTT, given that any proposal to alter tax legislation requires unanimity in the European Council.

Ireland and Holland are among the countries reluctant to introduce a FTT if the UK does not support the levy, given that trades in these countries could easily be transferred to London where they would not be taxed.

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