The European Commission has proposed a new a financial transaction tax on all EU members. The tax, set to come into effect at the beginning of 2014, would give the EU a boost of around 57bn euros (£50bn) per year.
After the UK said it would “resist” these measures, bank shares fell, with Royal Bank of Scotland closing at 3.64% behind.
Lloyds Banking Group fell 2.4% and Barclays dropped 1.22%.
Unfair to London?
Officials in the City of London calculate that 80% of the £50bn a year that this EU tax raises would come from the UK’s own banking hub.
Stuart Fraser of the City of London said that considering these figures, one must ask if the European Commission is really posing “a tax on London” rather than on the entirety of the EU.
Frasier also said that the tax could chase business and banking transactions out of the EU entirely, and that the cost of setting up the scheme would outweigh the profits it garners.
The tax proposes a 0.1% levy on all transactions between financial institutions if at least one party is EU-based. Derivative contracts would also be taxed, but at a rate of 0.01%.
BBC’s business editor Robert Peston said that though derivatives and bonds dealers are unhappy about the proposal, share dealers and investors will end up paying less, as the tax would replace the current, higher stamp duty.
Algirdas Semeta, EC commissioner for taxation, does not think the opposition is sound.
“Our project is sound and workable. I have no doubt this tax can deliver what EU citizens expect – a fair contribution from the financial sector,” Semeta said.
The commissioner also noted that financial services are already “in the majority of cases exempt from paying VAT,” as it is difficult to measure the taxable base.
Germany and France have been the frontrunners in calling for a tax on financial investment systems, as they are trying to display decisiveness in recouping losses from the banking crisis.
Commission president Jose Manuel Barroso also called for banks to “make a contribution” to help Europe as it faces its “greatest challenge.”
Though Austria, Belgium and Spain support the tax measures, the UK would need to approve it for it to be implemented throughout the entire EU.
The Commission says it will try to implement it in the eurozone should the UK veto the tax.