Europe rows back on FTT Plans

Europe rows back on FTT plans


European countries pressing for a £30bn financial transaction tax are rowing
back on their plans in the face of international opposition and concerns about
the economic damage the levy could cause.








Christian Noyer, governor of the
Bank of France, has warned the govenrment it needs to make unpopular spending
cuts Photo:
REX






By Philip Aldrick, Economics
Editor, and agencies

1:48PM BST 30 May 2013


77 Comments




In what would be a fundamental overhaul of the original proposal, the
controversial tax may now be rolled out more slowly than scheduled, the annual
levy reduced, and derivatives possibly excluded completely. The redesigned FTT
could end up raising just a tenth of the €35bn (£30bn) hoped, according to
reports.


The apparent retreat comes just days after France’s central bank governor
Christian Noyer warned that an FTT might “destroy” parts of the country’s
banking industry, cost jobs, and damage the public finances.


His words were striking because France and Germany have led the charge for an
FTT, which was agreed late last year by a minority group of 11 European Union
members.


Britain has objected fiercely, and is challenging the levy’s
“extra-territoriality” clause in the European court to stop the tax being
applied on euro transactions in jurisdictions beyond the 11 signatories,
including London.


Originally, the FTT was designed as a 0.1pc levy on equity and debt
transactions and a 0.01pc tax on derivatives, and was scheduled to be in force
by January 2014.



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However, the EU splinter group is now said to be considering reducing the tax
rate on equity and debt, and imposing the levy solely on shares from next year.
An FTT on bonds might not be introduced until 2016, and the planned levy on
derivatives could be dropped altogether. The annual revenues might fall to as
little as €3.5bn.

“The whole thing will have to be changed quite a lot,” an official close to
the negotiations told Reuters. “It is not going to survive in its current form.
You can introduce it on a staggered basis. We start with the lowest rate of tax
[0.01pc] and increase it bit by bit.”

UK Treasury sources yesterday said there was an “ongoing debate” among the EU
group, with a decision unlikely for months. German sources claimed the reports
were inaccurate, but the country is said to be unlikely to concede to any
changes publicly until after the September elections.

Appearing to confirm that the FTT is back on drawing board, a spokeswoman for
Algirdas Semeta, the European commissioner in charge of tax policy, said: “There
is a lot of technical work to be done still on the proposal. Depending on the
speed of progress from here, it is still feasible that the common FTT could be
implemented in 2014, although January 2014 is looking less likely.”

Speculation that the tax may be watered down came as Lord Lawson of Blaby,
the former Chancellor, described it as “perverse and unacceptable”. In the
forward to a Centre for Policy Studies (CPS) pamphlet, he said: “Designed to
punish bankers and raise money for the EU budget, its principal effect will be
to drive financial business away from the EU, including the UK, to more
hospitable jurisdictions elsewhere.

“That it should be considered in the interests of Europe to drive business
away from London, to the benefit of New York is both perverse and unacceptable.”


The CPS claimed the “extra-territoriality” risk to the UK, which the City of
London reckons could add £4bn a year to the cost of issuing UK government debt
alone, was higher than in the US because Britain is an EU member. Lord Lawson
said the FTT would be “unenforceable” in the US, which would drive UK business
across the Atlantic.

Should the FTT be reduced to a simple tax on shares, the damage to the UK
would be limited. The UK already applies stamp duty to share transactions, at
0.5pc. Of the £3bn raised annually, 40pc is estimated to come from overseas.
France last year introduced its own tax on shares, at 0.2pc.

Seven months ago, Germany, France and nine other countries – Italy, Spain,
Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia – agreed to
press ahead with the levy, having failed to persuade all 27 EU member states to
sign up.

However, officials within the group are now concerned that the scope of the
plans may go too far. Mr Noyer warned an ill-designed FTT ran “the risk of
destroying entire segments of our financial industry or the offshoring of jobs,
as well as the highly counterproductive effects on government borrowing and the
financing of the economy”.

Earlier this month, Sir Mervyn King, Bank of England Governor, claimed there
was “enormous scepticism” even among politicians in countries signed up to the
levy, adding that he could “not find anyone within the central banking community
who thinks it is a good idea”.

One eurozone ambassador involved in discussions told Reuters that early
enthusiasm was waning as governments became aware of the potential pitfalls. “If
one thing is clear, it’s that the financial transactions tax is not going to fly
as far as originally hoped,” he said.

David Hillman, a spokesman for the Robin Hood Tax campaign that has been
lobbying for the tax, said: “It is true that countries are debating the details
of the tax but our understanding is there remains a firm intention to agree a
strong FTT that will be popular with the public and raise tens of billions from
the banking industry.

“This tax must be implemented in full – it’s time the special privilege of
the financial sector, which has cost the rest of society so dear, is brought to
an end.”

Sandy Bhogal, head of tax at lawyers Mayer Brown, said: “It is the potential
economic impact of the proposals which caused the greatest concern. With the
issue of enforcement and practical problems in collecting FTT revenue still
remaining unresolved, particularly where financial institutions are outside the
FTT-zone, the scaled back plans and step-by-step approach may be more sensible.”

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