FTT will increase costs and restrict growth
Commenting on a Financial Transaction Tax (FTT), Chris Cummings, CEO of TheCityUK, said:
“A FTT will hinder UK and European competitiveness at a time when we need to do all we can to stimulate economic growth. The lion’s share of independent analysis shows that a FTT would increase costs for both industry and consumers, without adding to the tax take.
“If we’re not careful, we’re in real danger of creating a 'lose-lose' situation: the public finds their weekly shopping more expensive and their pensions lower – and the politicians won't have the extra tax income they were banking on. When Sweden introduced a similar tax in the 1980’s, bond trading became so expensive that virtually all the business flowed elsewhere.
“Much has been made of the negative impact on trade and investment – the EU’s own analysis estimates that EU output could fall between €65bn and €216bn, causing significant job losses across Europe.
“Another issue that deserves further attention is the likely impact of the FTT on pension savers and investors in securities. Rather than creating a stable environment in which individuals are rewarded for saving, the European Commission’s Proposal will hit pension savers where it hurts most, reducing their take home income by between 2.73% and 5.46%*.
“For a pension worth £10,000 a year, the direct impact would be to reduce their annual income by £273. Over a thirty year investment period, the impact of a FTT is very significant and will result in pension savers reaching retirement with diminished pension income.
Under the FTT, the tax will be suffered every time a pension contribution is made, often each month through payroll deduction. Likewise, the tax will also apply every time a pension saver switches their portfolio and every time a professional fund manager rebalances the portfolio.
“Claims, therefore, that a FTT is a tax on traders are wide of the mark.
“More widely, the European Commission shouldn’t dismiss the positive benefits of hedging which is an indispensable tool used by businesses for risk management and investment purposes. An example is the interest-rate hedging that farmers use to protect the value of payments they receive from the EU, without these, the price of bread, potatoes and even Brussels sprouts would be higher. A transaction tax on these corporate activities will only add to the cost of doing business in the EU.
“Ultimately industry and policymakers need to work together to protect European competitiveness. A FTT risks penalising savers, undermining industry and reducing the European tax take – a result that is in no-one’s best interest.”
View our infographic: EU Member States' positions on the FTT
*Oxera Review of European Commission’s Impact Assessment.
