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Osborne Slates FTT Plans

by Robert Lee,, London

27 December 2011

The European Commission's plans for a financial transaction tax (FTT) would have a substantial impact on the UK's revenues, the Chancellor has said.

In a newly released letter to the chairman of the parliamentary Treasury Select Committee, George Osborne wrote the UK could expect to see revenue losses as a result of a 'tobin' tax. Osborne was responding to chairman Andrew Tyrie’s query on the impacts of a euro area only FTT on the volume of trading in the UK and on UK firms trading with the eurozone. He noted that it is “possible that the tax might raise no additional money at all for the Exchequer.”

Osborne believes that any gains in direct revenue would be offset by losses in other taxes. He predicts a tobin tax would result in lower stamp duty revenues of GBP3bn a year. The UK could also expect to see a reduction in corporate tax receipts from the financial services sector.

Furthermore, some FTT payments from financial institutions headquartered in other EU member states would be made to their home government, instead of the UK. Osborne said this would mean further revenue losses for the UK, and also have an indirect impact on other taxes, due to the negative growth impacts of the EU’s plans.

Osborne concluded by informing Tyrie that the government will continue to monitor the situation closely.

Commenting on Osborne's letter, Tyrie said: " “Financial services is a highly competitive and mobile global industry – if the European business and fiscal environment is unfavourable then firms will vote with their feet. As home to Europe’s only truly global financial centre, the UK will be disproportionately affected. It is not just financial services that will suffer but pension funds and any businesses trading with Europe."

“It is crucial to avoid damaging unintended consequences. It is not even clear how much would accrue to the UK as opposed to the EU Budget. This looks like an extreme case of spending money before we have it," Tyrie stressed.

TAGS: tax | investment | economics | business | European Commission | fiscal policy | corporation tax | tobin tax | United Kingdom | tax rates | stamp duty | revenue statistics | tax reform | services | Europe

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