By Simon Miller
A House of Lords committee has condemned the European Commission's proposals for a financial transaction tax (FTT) as flawed and should be turned down by the UK government.
In a report release this morning (30.03.2012), the House of Lords EU Sub-Committee on Financial and Economic Affairs said that not only is the FTT propsals flawed but would also fail to fulfil the Commission's own objectives.
The report noted: "We find the Commission's propsed residence principle to be impractical and unworkable, and conclude that there is a significant risk that financial institutions would relocate outside the EU if an FTT is introduced."
The Lords added that the propsals would place the City of London under severe threat and "given the strategic importance of the City of London, such relocation would have a highly damaging impact not only for the UK but on the economic health of the EU as a whole. A proposal that would have such a disproportionate impact on the UK above all other Member States makes the Commission’s proposals particularly unacceptable."
Although the Committee acknowledged the strength of public anger against the financial sector, an FFT was the wrong way to meet demands such as having the sector contribute to the costs of the financial crisis and using such revenues to tackle global poverty and climate change.
In addition, the Commission chided the government for stating that it had no objection to a global FTT.
"The Committee found the minister’s explanation of this position unconvincing. If the government’s true position is to oppose an FTT outright, then they should say so," said the report.
Commenting on the report, Lord Harrison, committee chairman, said:
“This is an issue that we just can’t afford to ignore. We’ve been disappointed in what we discovered when we examined the Commission’s proposals and found the model wanting in numerous ways. The government should absolutely not agree to the proposals in their current form. There is huge uncertainty about the impact of any financial taxation proposal on the UK and the government need to redouble their efforts to influence the debate."
He added that even if the FTT was only adopted by a small group of Member States, there would still be huge implications for the UK, "not least because transactions between UK financial institutions and those within the jurisdiction of the FTT would still be liable for the tax".
Harrison continued: "The government needs to assess how we would be affected if the proposals are taken forward by some or all euro area Member States as a matter of urgency so that it can argue with conviction and contribute to the debate.
“Whatever our opinions of these proposals, the debate on whether and how the financial sector should be taxed cannot be ignored. Whatever shape discussions take in the future, the implications for the UK are extremely significant”.