Sep 28, 2011 8:58 AM ET
U.K. Business Secretary Vince Cable earlier today said taxation is a “national competence issue” and European Union proposals for a levy on financial transactions cannot be forced on the U.K. Photographer: Matthew Lloyd/Bloomberg
Sept. 28 (Bloomberg) -- U.K. Business Secretary Vince Cable discusses trade relations with Turkey, and European Union proposals for a levy on financial transactions. He talks from Istanbul with Owen Thomas on Bloomberg Television's "On the Move." (Source: Bloomberg)
Sept. 28 (Bloomberg) -- Guillermo Felices, head of European currency strategy at Barclays Capital, discusses the outlook for the euro, the sovereign debt crisis and European Central Bank monetary policy. He also comments on the dollar's haven status and the pound. Felices spoke yesterday with Bloomberg's Paul Dobson in London. (Source: Bloomberg)
The European Union proposed a financial-transactions tax that would take effect in 2014 and raise about 57 billion euros ($78 billion) a year, prompting renewed opposition from the U.K.
The plan would set minimum tax rates for financial transactions throughout the 27-nation EU, the European Commission, the bloc’s Brussels-based executive, said in a statement. Today’s proposal would apply a tax of 0.1 percent on trading of stocks and bonds, with a 0.01 percent rate for derivatives contracts.
European governments are split over the merits of a transactions tax, with the U.K. Treasury saying today that such a levy would need to apply globally and “there are a number of practical issues that need to be worked through.” EU tax proposals require unanimous support of the bloc’s 27 members.
Belgian Finance Minister Didier Reynders and Spanish Finance Minister Elena Salgado said on Sept. 17 that the euro area’s 17 governments should consider introducing their own tax if no agreement were possible at the global or EU level.
In a press briefing today in Strasbourg, France, EU Tax Commissioner Algirdas Semeta downplayed the prospect of narrowing the proposal’s scope.
‘Clear Benefits’
“There are clear benefits of the proposal for the United Kingdom,” Semeta said. “It will give additional revenues to our member states including the United Kingdom. Many member states need consolidation efforts and these additional revenues would be also beneficial for the U.K. At the same time, it would reduce the contribution of the United Kingdom to the EU budget.”
The proposed tax is aimed at banks, investment firms, insurance companies, pension funds, stockbrokers and hedge funds, among other types of financial firms, the EU said. Spot foreign-exchange trades would not be covered by the tax, while currency derivative contracts are included.
Transactions with the European Central Bank and other central banks wouldn’t be covered by the tax, according to the proposal. It also features an exemption for the “primary market,” which includes sovereign and corporate bond auctions.
“The tax would aim at covering 85 percent of the transactions that take place between financial institutions,”according to the statement. The EU is seeking to insulate households and small businesses from the levy, and says banks could charge “not excessive” fees such as a 10-euro fee on a 10,000-euro stock purchase.
‘Fair Contribution’
The tax would “ensure that the financial sector makes a fair contribution at a time of fiscal consolidation,” the commission said in the statement. EU member states will discuss the proposal before the commission presents the plan to the Group of 20 nations at a November summit.
An impact assessment accompanying the proposal says that the plan would have a “long-run” negative impact of 0.5 percent of gross domestic product. The tax would affect market behavior and financial-industry business models, such as high-frequency and automated trading, the EU said.
“It is time for the financial sector to make a contribution back to society,” European Commission PresidentJose Barroso told the European Parliament in announcing the proposal in Strasbourg.
‘Frictions’
The plan drew support from Oxfam International and Catholic Development Agencies, who said the measure would increase justice and provide funding for environmental and social goals. Oxfam said the U.K. has existing taxes that haven’t had a big negative effect on London business, suggesting that the EU proposal also would not do harm.
U.S. Treasury Secretary Timothy F. Geithner said this month that a transaction tax could create “frictions” that would worsen the impact of a crisis, without offering a protective reduction in volatility or risk-taking.
“I don’t think their history is very good in containing the risks of large swings in asset prices,” Geithner told a financial forum today in Wroclaw, Poland, on Sept. 16. “I don’t think they’re the most effective way to contain leverage, or limit leverage, and I think most evidence suggests that they probably damage liquidity, that they undermine depth in markets, which is valuable in a crisis,” he said.
Stephen Machin, managing director at Alvarez & Marsal Taxand UK LLP, called the proposal “a populist measure” and said it “will put EU financial centers at a disadvantage” to competitors. “If this tax is introduced in the U.K., then significant volumes of transaction activity will move” to other regions.
‘National Competence’
U.K. Business Secretary Vince Cable earlier today said taxation is a “national competence issue” and EU proposals for a levy on financial transactions cannot be forced on the U.K. Cable was speaking to Bloomberg Television from Istanbul.
Today’s announcement follows a 2010 proposal that failed to draw agreement among member nations. The financial industry says a transaction tax would affect the broader economy because banks would pass on costs to clients.
French president Nicolas Sarkozy and German Chancellor Angela Merkel have called for the EU to introduce its own transactions tax irrespective of whether other regions follow suit.
To contact the reporters on this story:Rebecca Christie in Brussels at rchristie4@bloomberg.net
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