(11 years, 2 months ago)
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Lord Willoughby de Broke
To ask Her Majesty’s Government what assessment they have made of the effect on the United Kingdom financial services industry of the Eurozone financial transaction tax recently proposed by the European Commission.
Lord Newby
My Lords, on 14 February, the European Commission published a proposal for the implementation of a financial transaction tax through enhanced co-operation. The UK has the largest financial sector in the EU. The Government oppose the European Commission’s initial proposal for an EU-wide financial transaction tax and the UK will not be participating in an FTT introduced through enhanced co-operation by a group of member states. We are currently studying the draft proposal carefully to understand its impacts and will continue to engage fully in discussions going forward.
Lord Willoughby de Broke
My Lords, I am grateful to the Minister for that Answer as far as it goes, but, reading the newspapers and the Commission’s proposals, I believe that the United Kingdom will be affected. Can the Minister confirm that UK tax policy is made in Parliament and not by the European Commission and a gaggle of member states which are jealous of the City’s pre-eminence in financial services? What actions will the Government take to protect our special interests in this matter?
Lord Newby
My Lords, as I said in my original Answer, we are fully engaged in discussions going forward. If the FTT is introduced, it will have a number of impacts on the UK. The Government are in the process of assessing what those impacts might be.
Lord Forsyth of Drumlean
My Lords, can my noble friend tell us how much the European Commission expects the tax to raise? Will it not be pensioners and consumers who have to pay it?
Lord Newby
My Lords, the estimate that the Commission has produced is that the tax would raise €35 billion. It would not be raised from all financial institutions across the EU; it would be raised only from those established in countries which levy the tax. A tax such as this, which covers things like shares, trickles down through multifarious channels but, obviously, at the end of the day, a very large number of people end up paying a small amount towards it.
Lord Barnett
If the treaty eventually proposes a tax that would affect this country, will the Minister make it clear that we would veto it?
Lord Newby
My Lords, the noble Lord needs to understand the difference between a tax which we would levy, where there is a veto, and a tax which we would help collect, of which there are a number of existing examples in EU law and this would be another.
Baroness Wheatcroft
My Lords, does my noble friend agree that a tax which was to some extent a deterrent on frequent trading—for instance, algorithmic trading—might not be such a bad thing if it encouraged long-term investment in shares?
Lord Newby
My Lords, I am sure that many noble Lords share that aim. The question is whether such a tax would have that impact, and the academic work on it is ambiguous at best.
Lord Eatwell
Will the noble Lord explain why the Government are so allergic to the financial transaction tax, which is to be levied at less than 1% of the value of transactions and by many countries, whereas we are quite happy to have stamp duty levied on transactions at 5%, which is effective only here in the UK?
Lord Newby
My Lords, we have some examples of where this kind of thing has been done in the past. In 1989, Sweden introduced its version of an FTT and in the first week the volume of bond trading fell by 85%, even though the tax rate was only 0.003%. The volume of futures trading fell by 98% and the options trading market disappeared. Not surprisingly, Sweden is not now supporting the idea of a Europe-wide FTT.
Baroness Kramer
My Lords, the original concept of the financial transaction tax was that it would be global and that the funds would be used to assist the developing world. Have the British Government considered that, as many politicians on all sides support those concepts, they might take leadership in this global role, which might strengthen their hand in these much more parochial negotiations with the European Union?
Lord Newby
My Lords, the noble Baroness will recall that in 2011 the French Government proposed such a tax at a global level in G20 and there was widespread opposition to it from, among others, the US, China, Australia and Canada. Sadly, there is nowhere near a global consensus on whether such a tax is a good idea, and, equally, there is no consensus, even within the EU, about where the money should go. The French were, and are, keen that at least part of the proceeds should go to development aid, but the Germans, for example, propose that any receipts from the FTT should simply go into the central tax pot.
Lord Lea of Crondall
Given the behavioural crisis in many of the financial institutions in recent years, would the Government not be well advised to discuss the merits of such taxation around Europe, rather than reacting like Pavlov’s dog to anything just because it comes from Brussels?
Lord Newby
My Lords, we are engaged in discussions on this tax as it could have significant impacts not just on the City but across the EU. While the Government are not opposed in principle to a global FTT, with the lack of consensus on such a thing and faced with a proposal which we think could be damaging not just to the UK but to Europe as a whole, we are rather sceptical about it.
Lord Pearson of Rannoch
How do New York and other financial centres react to the international reach of this particular piece of EU lunacy?
Lord Newby
My Lords, as far as I am aware, New York has not yet responded to the most recent Commission proposals.