EU: Financial Transaction Tax (EUC Report)

Lord Dear Excerpts

Tuesday 17th December 2013 Grand Committee

[Lord Dear (CB)]

My Lords, I congratulate the noble Lord, Lord Harrison, on securing this debate. My contribution, like that of others, will necessarily be short and I will take a broad brush to this issue. I am a member of the EU Select Committee and of the Economic and Financial Affairs Sub-Committee, which conducted this inquiry. I think I speak for all of us when I say that we considered the financial transaction tax looking for a kernel of benefit to this country and a scintilla of logic behind the imposition of the tax. What we found, it is fair to say, was instead a desire to generate revenue quickly and to punish the financial institutions that it was thought had landed the whole of Europe—indeed, perhaps the whole world —into the sort of financial difficulties that we now experience.

That certainly ignored the issue of extraterritoriality. It also seemed to ignore the legitimacy of the tax itself and the tax’s impact on the financial markets, particularly, for example, on high-frequency trading. The consequences, as the noble Lord, Lord Harrison, has said, would include damage to the City: if the tax comes into being, it will almost certainly drive business away to places such as New York, Hong Kong and Singapore. Then there is the impact, as has already been said, on the 17 non-participating states and perhaps even on the whole of the EU. To put it another way, enhanced co-operation, on this occasion at least, seems to be the minority dictating to the majority, to the detriment of all.

We were disappointed by the slow take-up by Her Majesty’s Government, as has already been said, and by the sanguine approach adopted by the EU, which was typified in the evidence that was given to us on 19 March by Manfred Bergmann, the director of indirect taxation and tax administration at the EU— DG TAXUD is the acronym. Mr Bergmann seemed to take a particularly benign view of what would happen, and his evidence on the impact of the issuance principle, so far as it applied to non-participating states, was surprising. We welcomed the fact that the Council’s own legal service gave an opinion which, according to our report, said that,

“the deemed establishment principle does not comply with the Treaty requirements for enhanced cooperation”.

It listed a number of grounds, but perhaps the most important was the fact that the tax, if it comes into being,

“would exceed the norms of customary international law in respect of extraterritorial taxation”.

Her Majesty’s Government, as we have already been told, are now making a legal challenge—seeking an opinion of their own, if you like. I suppose one could say that is better late than never. Indeed, the timetable for that is already a matter of record in your Lordships’ Chamber.

In conclusion, I simply ask the Minister whether there is any chance at all that, if the result of the Government’s legal challenge reflects the advice of the Council Legal Service, the Government will adopt a more robust stance so far as the FTT is concerned, to the benefit of the whole country and, indeed, the whole of Europe.