Tim Kirk (pictured), Partner and National Head of Financial Services at BDO LLP, on Jose Manuel Barroso and Nicolas Sarkozy’s confirmation of the EU’s commitment to press ahead with a unilateral Financial Transaction Tax (FTT)…
While potentially attractive, the idea that an FTT will make banks pay more towards economic recovery, or raise sums in the region of GBP30bn for development, is unrealistic.
The simple maths do not take account of how firms will react to the imposition of an FTT. Many low margin trades would simply not take place if the tax was imposed, while an EU-only tax would simply drive transactions out of the EU and divert trading to other jurisdictions.
An FTT will also increase the cost of business for the manufacturers and exporters by adding extra cost to the straightforward transactions they make to take risk out of their business, such as hedging against foreign currency exposures. Some of the activities likely to be penalised by a financial transaction tax are exactly the activities that will help drive the trade and growth the Eurozone desperately needs.
The Commission seems intent on ignoring the evidence from its own investigation and from experience in other countries that an FTT will not raise the sums promised.
It must remain unlikely that the UK government will agree to an FTT being imposed, knowing the disproportionate impact it will have on the UK and London.
There may have been some potentially interesting hints from the statement coming out of Cannes that the EU may press ahead with an FTT within the Eurozone region only, although it’s not clear this would win widespread support from the French and German leaders.