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The European Commission's plans for a financial transaction tax (FTT) are "divisive" and would be "detrimental to the UK's interest," a group of lawmakers has alleged.
A report published by the House of Lords European Union (EU) Sub-Committee on Economic and Financial Affairs claims that there are serious flaws in the Commission's decision to press ahead with its proposals by using enhanced cooperation.
The enhanced cooperation mechanism enables those EU member states that are wishing to work more closely together to do so. To date, 11 jurisdictions have signaled their intention to adopt an FTT via this procedure.
According to the Sub-Committee, non-participating member states would still feel the brunt of the FTT, even if it were nominally confined to the so-called EU11. For instance, the UK would "unfairly" be required to collect the tax on behalf of other governments.
Releasing the report, Sub-Committee Chairman Lord Harrison said that in giving enhanced cooperation the go-ahead, the Commission "only paid lip service to the legal requirements of enhanced cooperation, and has failed in its duty to countries such as the UK who oppose the move." He added that the Commission has a duty to each of the EU's 28 member states, and that "this sort of cavalier approach to legislation risks making losers of us all."
The UK Government also receives criticism in the report. The Lords criticise the Coalition for its apparent "slowness" to fully appreciate the potential risks at hand. The Commission is, in turn, accused of "dragging its feet" in providing details on the obligations that would be faced by the authorities charged with collecting the FTT. The Committee regards it as "unacceptable" that the full implications of the proposal were not made plain before the vote on enhanced cooperation took place.
The Lords' fear that plans for an FTT are continuing apace appears to have been borne out by events this week. The UK's Financial Times, together with news agency Reuters, maintain that they have seen a document which proposes a compromise settlement that would allow the EU11 to move forward on the issue. Drawn up by EU Presidency holder Lithuania, the so-called "compromise paper" will be debated at a meeting of officials this week.
Under the changes, all collateral management and repo market transactions would be exempt from the FTT. Godfried De Vidts, chairman of the European Repo Council, welcomed the news. He told Reuters: "As repo is such an important instrument in modern financial markets, the possible exclusion of repo and collateral from the tax, which threatened their efficient operation, is a most encouraging development."
Exemptions could also be granted for the issuance of money market instruments and for all transactions carried out by central banks or by the Bank for International Settlements. However, the Financial Times alleges that the tax would ultimately cover "all deals conducted before they are cleared."
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