Bloomberg News

EU Transactions Tax Will Hit Hardest in London, ITEM Club Says

February 07, 2012

Feb. 6 (Bloomberg) -- A proposed European tax on financial transactions may cost British-based companies as much as 22 billion euros ($29 billion) a year and cause 4,500 job losses whether the U.K. agrees to it or not, according to Ernst & Young LLP’s ITEM Club.

The British financial sector would contribute about 64 percent of total revenues from the proposed tax if it was applied across the euro area to all euro-denominated trades irrespective of where they take place, the research group said in a report today. If Britain continues its opposition to the tax, the U.K. Exchequer would also be denied any of the proceeds, the ITEM Club report said.

“As many euro-denominated trades take place in London, this could effectively impose an FTT on the U.K. through the back door,” the ITEM Club said in the report.

The European Commission last year proposed a European Union-wide transaction tax, an idea supported by France and Germany. The U.K. has led opposition to the tax, calling it “madness” and saying it would be ineffective unless applied globally.

An EU-wide tax applied with British agreement would raise 53 billion euros a year, of which the U.K. would contribute 41 billion euros, the ITEM Club said. If it was applied across the euro area only and Britain remained opposed, the tax would raise 35 billion euros, of which the U.K. would contribute 22 billion euros.

‘Spillover Effects’

The latter option would lead to about 2,100 job losses in the U.K. financial-services industry. Taking account of “spillover effects” on other industries, total job losses could reach as many as 4,500 nationwide, the ITEM Club said.

The EU plan would tax stocks, bonds, money-market instruments and derivatives at source, including at banks, hedge funds and insurance companies. It would exclude government bond auctions, while including secondary-market trading and repurchase-agreement markets, according to EU documents. The financial-transaction tax would be set at 0.1 percent for stocks and bonds and 0.01 percent for derivatives.

About 70 percent of all the foreign-exchange trading done in the U.K. involves euros and about 54 percent of the over-the- counter interest-rate derivative transactions carried out in the City are similarly denominated, the ITEM Club said.

German officials have been raising the idea of extending an existing tax, the U.K.’s stamp duty, to shares across the EU because of British opposition. Finance Minister Wolfgang Schaeuble said in an interview with broadcaster N-TV last week that he would discuss such a plan if there’s no agreement on a transaction tax. Last month, France said it would introduce the tax with or without the rest of the EU.

Britain’s Prime Minister David Cameron last month said that to even consider the transactions tax “at a time when we are struggling to get our economies growing is quite simply madness.”

EU estimates “showed a financial-transactions tax could reduce the GDP of the EU by 200 billion euros, cost nearly 500,000 jobs and force as much as 90 percent of some markets away from the EU,” Cameron said.

--Editors: Francis Harris, Eddie Buckle

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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