A plot to impose financial transaction tax on UK

October 28, 2011, 10:30 / Advisory / Jurisdictions: United Kingdom, EU, Source: telegraph.co.uk

A group of European politicians is plotting to impose the financial transaction tax (FTT) in a way that Britain would be powerless to veto, a British Member of the European Parliament has warned.

Dr Kay Swinburne, MEP and spokesman for Europe's economic and monetary affairs committee, told a group of regulators in Manchester that Britain was wrong to "relax" and rely on its veto to block the controversial tax.

She said a group led by Algirdas Semeta, the European tax commissioner, had "already started work" on presenting FTT as a valued added tax (VAT) - which could be imposed without being ratified by a vote and therefore strip Britain of its right to veto.

Under European rules, new taxes have to be agreed unanimously by all members but VAT can become law with a simple majority.

Dr Swinburne made the comments at a private breakfast at the Conservative Party conference which included representatives of the Financial Services Authority and Financial Reporting Council.

Mats Persson of Open Europe told The Telegraph: "Any attempt at circumventing the UK veto, and passing an FTT via the back door, would be a disaster for the UK and the City of London. Trying to get around the veto in this way is unlikely to work, but the UK Government still needs to be absolutely clear that this is a complete non-starter."

Recently, Jose Manuel Barroso, the president of the European Commission, announced that the FTT would be proposed as a law for the first time as a way for the "financial sector to make a contribution back to society".

The move was criticised as a "tax on the City of London", where almost 80pc of Europe's financial services are based.

Since all European tax changes have to be approved unanimously, the British Government immediately said it would use its veto to block the tax unless it was "levied globally".

In his "state of the union" address, Mr Barroso said the tax could generate revenues of more than €55bn (£47bn) a year. He said: "In the past three years, member states have granted aid and provided guarantees of €4.6 trillion to the financial sector." He added: "It is a question of fairness. If our farmers, if our workers, if all the sectors of the economy from industry to agriculture to services, if they all pay a contribution to the society, also the banking sector should make a contribution to the society."

The European tax would levy trades in shares and bonds at a rate of 0.1pc and derivative contracts at a rate of 0.01pc from January 2014.

Dr Neil Bentley, the deputy director-general of the CBI, said introducing the tax was "completely misguided" at a time of economic uncertainty.

Dr Swinburne told the group of regulators that although Britain's engagement with European authorities was improving, there was still an urgent need for "constructive communications" over financial regulation.

"Few Europeans think that London does anything particularly well in terms of financial regulation," she warned.

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