EU Transaction Tax Would Hurt the UK
LONDON – The UK government could face an extra GBP 4 billion in expenses per year if a tax on financial transaction is enacted by other countries in Europe.
If the currently proposed pan-European financial transaction tax were to implemented in its current form, the cost of issuing corporate and sovereign debt in the UK would rise significantly, despite the fact that the country has refused to be part of the system, according to the result of a new study commissioned by the City of London Corporation.
Currently 11 countries in the Eurozone are working towards implementing a joint financial transaction tax which will be levied on all operations involving bonds, share, equities, derivative products and other financial products.
According to the study, even though the UK will not implement the tax, the system could lead to a GBP 3.95 billion increase in the cost of issuing sovereign debt in the UK, and will also lead to a 100 basis point rise in the cost of capital faced by corproations in the country.
The results of the study also indicated that similarly negative economic costs could be felt in the other European countries which are choosing not to implement the tax.
Overall, it was found that the tax would have the strongest effect on the returns from sovereign bonds issued in non-participating countries.
Explaining the potential negative impacts of the tax, and the effects that will be felt in Europe, the policy chairman at the City of London Corporation Mark Boleat said “…not only would it adversely affect the cost of sovereign debt but it would also make it more difficult for businesses across the continent to access funding … in reality, the FTT [financial transaction tax] is likely to negatively affect end users such as pension funds, while generating less revenue than estimated due to the behavioural change that would result.”
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