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EU Commissioner seeks to convince sceptical UK of merits of FTT
On 16 February 2012, Algirdas Semeta, the European Commissioner for taxation, appeared before the House of Lords EU Economic and Financial Affairs and International Trade Sub-Committee to persuade them of the merits of UK involvement with a European financial transactions tax (FTT).
The thrust of Mr Semeta’s comments was that the effect of an FTT on economic growth would be a “negligible” 0.01 percent cut in annual growth, with approximately €57 billion being raised across the EU (€10 billion of which would be raised for the UK Exchequer alone). In fact, he suggested that any funds raised could contribute to growth in Europe by leading to a reduction in other taxes or increased investment in public services and infrastructure. This corresponds with the general view of the European Commission which, having revised its own initial impact assessment, now concludes that rather than leading to a reduction in GDP, an EU-wide FTT would actually have a positive impact on European economic growth.
In a recent article for the Daily Telegraph newspaper, Mr Semeta dismissed claims that an FTT would be utilised as a “backdoor way” of increasing the EU budget, claiming instead that extra revenue brought in by virtue of the FTT “would be offset by reductions in national contributions”.
Mr Semeta’s remarks contrast strongly with those of many in the financial services sector, in particular in the UK where the prominence of the City of London as a financial hub means a greater – and more vocal - interest in protecting financial markets. The UK Chancellor, George Osborne, said that he would veto an EU-wide tax, stating simply that “There are too many unanswered questions”. Members of the House of Lords Sub-Committee were even more vehement in their opposition, claiming that the tax would force business outside the EU and the proposed extra-territoriality of the FTT would trigger “massive trade disputes”.
Mr Semeta did accept that high frequency trading would be discouraged by an FFT, but went on to dismiss such economic activities as “socially useless” and “high risk”. Furthermore, he discounted the possibility of financial institutions relocating outside the EU to avoid the FTT, pointing to the existence of well-developed infrastructure, in particular in the City of London, and explained that any planned implementation of an FTT would seek to minimise the risk of relocation. Seeking to reduce the risk of relocation is, of course, an unobjectionable aim but, as we have pointed out before (click here), far easier to articulate than to implement.
The efforts of the European Commissioner in attempting to convince the UK Parliament of the merits of an FTT indicate a reluctance by the European Commission to settle for a unilateral, national-based system, a slimmed down version of which has been pledged by French President Nicolas Sarkozy and is currently going through the French Parliament. The lack of consensus however between the EU member states has been, and is likely to continue to be, a major stumbling block in achieving the unity required to implement any sort of transnational tax regime. The next instalment in this saga at EU level is likely to take place in early March, when the European Council of Ministers meet to discuss the FTT and enhanced co-operation in the area of tax.