By Simon Miller
A financial transaction tax (FTT) could cost the UK 4,500 jobs as a result of spill over effects outside the financial sector according to the Ernst & Young (E&Y) Item Club.
Despite UK Prime Minister David Cameron's pledge to keep the UK outside of a FTT, E&Y warns that with discussions over placing a revese charge mechanism, for the FTT - such as all trades denominated in euros to be taxed wherever the trade took place - would see the tax essentially being applied to the UK via the 'back door'.
As a result, the UK financial sector could be expected to contribute 64% of total revenues from an FTT imposed at the eurozone level.
The E&Y Item Club report added: "Moreover, these revenues
would flow directly to governments in the Eurozone rather than to the UK Exchequer."
It added that despite the EU saying that job losses would be minimal asa result of a FTT, the UK was "likely to bear the brunt of these losses,
given that the majority of the affected financial activities take place there."
E&Y added: "Potential spill over effects to other forms of employment may also be substantial, as workers in the securities industry consume a range of goods and services, thereby supporting other business sectors."
If the UK did join the FTT, the impact would be worse. According to E&Y the UK would account for 77% (€41bn) of the total potential revenue that could be generated by an FTT. Excluding a currency transaction tax, UK revenues would amount to a share of 75% (€28bn) of the total projected EU revenues (€37bn).
The latest E&Y Item Club outlook for financial services can be found here.