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London Mayor Fears EU Transactions Tax

by Robert Lee,, London

02 November 2011

Europe should drop its proposals for a financial transactions tax at the earliest opportunity, London's Mayor has said, slamming the plans as a 'new mill stone' which will do major economic damage.

Writing to European Commission President José Manuel Barroso, Boris Johnson warned that the introduction of a 'Tobin' tax across European Union (EU) member states would drive business to financial centres outside the union and damage its economy. In his letter, Johnson explained that he is particularly concerned with the negative impact the tax could have on economic growth and jobs in London.

According to information released by Johnson's office, the financial services sector accounts for around 8% of London's workforce, supplying 330,000 jobs, and providing around 20% of the city’s Gross Value Added. Financial services are also London’s primary export to the rest of the world. The Mayor's office argues that London is, effectively, one of only two genuinely global financial services centres in the world along with New York, with both competing with Singapore, Hong Kong and other Asian centres.

In addition, London's position as the EU’s primary financial services centre is held to be at stake. Across the EU, the financial services sector employs 6.5m people, with an additional 3.3m jobs supported through the accountancy and legal professions, taking the total close to 10m. Johnson believes that all EU countries would suffer job losses in the long term as a result of the tax.

Moreover, the Mayor also believes that the impact of the tax will not just be limited to the financial services sector and related industries, but will hit EU business and its citizens too with higher borrowing costs and decreased pension fund values. Johnson emphasized that while he agrees with the need for reform, he would only consider supporting the tax if it were adopted globally - which he sees as unlikely given the strong opposition from the US.

Thus he has urged the EU to explore alternative reform measures which support strong and sustainable economic growth, and to drop the tax proposals at the earliest opportunity. Johnson argued: "At a time when many EU member economies are struggling, some on their knees, it would be madness to weigh them down with this new mill stone. Apart from weakening its financial sectors and London's in particular, it will hamper the ability of businesses across Europe to compete in the global market and have serious implications for EU jobs. These proposals should be dropped immediately and energy directed towards designing sensible reforms which also support and promote the EU's financial services sectors and the growth of member states' economies."

TAGS: tax | investment | economics | business | European Commission | banking | capital markets | tobin tax | Singapore | United Kingdom | offshore | agreements | offshore banking | Hong Kong | European Union (EU) | services | Europe

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