UK Lobby Groups Attack European FTT Plans
27 May 2013
Posted by: Author: Robert Lee
Source: Robert Lee (Tax-News.com, London)
Three UK lobby groups have written to European Union leaders to highlight their concerns regarding the proposed financial transactions tax (FTT), warning that it represents "a major risk to Europe's ability to recover from the current economic problems it faces."
The letter, composed by the Confederation of British Industry (CBI), the British Bankers' Association, and the manufacturers' organization EEF, was sent to European Commission President Jose Manuel Barroso, European Council President Herman Van Rompuy, and ECOFIN Council President Michael Noonan. It describes the FTT as "fundamentally a tax on growth" that is likely to increase the cost to business of raising funds and hamper their future expansion. Small business would be particularly hard hit, as they rely more heavily on bank borrowing.
The lobbyers stress that while they do not oppose in principle European Union member states' rights to implement a harmonized Tobin tax within their own borders, they expect the current proposal to have considerable extraterritorial reach. They criticise the allegedly "low" FTT rates of 0.01% on derivatives and 0.1% on other financial instruments as providing false comfort, and overlooking "the cascading nature of the tax that results from its application to the intermediate stages of financial transactions." The FTT will further affect "products in daily use where suppliers aim to minimize the effect of wholesale price rises through hedging some of the risks involved," while "businesses seeking to fix the basic costs of their commodity supplies … will find the hedging transactions more expensive."
Nor will businesses be the only ones affected, the letter claims. The FTT will result in lower interest rates on savings products and higher costs to pension funds, thus reducing the amount of money available to retirees. It will also "very quickly feed through into higher costs for households," and slash employment levels.
The recommendation made is that "a much more rigorous process [be] put in place to access the true impact of the proposed FTT than appears to have been undertaken so far.
"This should analyze the effects not only on the financial sector, but the increase in costs for European households and businesses, and the wider effects it will have on financial stability in Europe."