Financial Transaction Tax: European Union Report

Lord Hannay of Chiswick Excerpts

Wednesday 11th July 2012 Grand Committee

[Lord Hannay of Chiswick]

My Lords, I pay tribute to the work of the noble Lord, Lord Harrison, and his colleagues. In recent months, their sub-committee has produced a string of reports on these financial issues that are so troubling the whole world but, in particular, Europe and the eurozone. We owe a debt of gratitude to them.

The Commission’s proposal for an EU financial transaction tax seems, alas, to have as many lives as Rasputin. No sooner is it pushed under the ice, as it was at a recent ECOFIN council, than it pops up again in the conclusions of the June Council, this time as a possible tax in the eurozone alone or perhaps, in the eurozone-plus if countries, such as Sweden, which burnt their fingers so badly on a single-state version of the tax in the 1990s are not more cautious on this occasion, so we certainly cannot afford to be complacent and assume that the problem has passed us by nor, as the Government seem to do—here I join the noble Lord, Lord Harrison, in his view—to assume that such a tax levied by the eurozone countries alone would have only positive consequences for us, no negative ones.

I should make it clear at the outset that, unlike noble Lords who have spoken before me, I am not a fan of even a genuinely worldwide FTT, such as the Tobin tax idea, to which the Government pay lip service without, it must be admitted, much sign of enthusiasm. Like the taxation of tobacco, its protagonists never seem able to decide whether they are really trying to to deter a nasty habit or to raise the maximum amount of money for good causes. In any case, a worldwide FTT remains a pipedream. Can anyone seriously foresee the US Congress, either the present one or one likely to be elected this November, voting in favour of an FTT? If that is the correct judgment, we need to face up, as the Commission lamentably failed to do, to the risk of displacement, of transactions simply moving off to New York, Geneva, Tokyo or Singapore, leaving Frankfurt, Paris and perhaps even London deprived not only of the proceeds of the tax but of the employment and corporate revenue tax benefits from the businesses carrying out the transactions.

Experience shows this to be no idle risk. Not only did Sweden, which I have mentioned already, suffer in this way in the 1990s, but the whole episode of the euro-dollar market which sprung up in London almost overnight when the Americans made an unwise fiscal decision is there as an awful warning. Europe needs a stronger, deeper capital market if its economy and single market are to prosper, not a shallower, feebler one, which it would be all too likely to end up with if any variant of an FTT on a Europe-only basis were to be introduced.

The Government are right to resist the Commission’s proposal for sound European reasons, not only British reasons. I wish that the Government would put the argument in those terms, not depict it simply as a heroic defence of the City of London. When the Minister replies to the debate, I hope that he will explain why the Government are so confident that there will be no negative consequences for the UK from a eurozone-only variant of the FTT. I am no banking expert but that proposition looks to me to be not entirely convincing.

As to whether there are alternative, less harmful ways of taxing at least some financial transactions—here I follow the course of the previous two speakers—of course there are. The stamp duty on share transactions such as we already levy in this country is one such. I do not see why the Government, in their reply to the excellent report of the noble Lord, Lord Harrison, felt the need to be so negative about such an approach at the EU level. I do not even see why we should jib at having an EU minimum rate for such taxes, as our rate is well above the level which any member state which currently does not have one is ever likely to impose. After all, that is what we have for value added tax.

The need to avoid a race to the bottom, or the creation of tax havens within the EU, deserves to be taken seriously. As long as the Commission’s even more unwise initial suggestion that the proceeds of an FTT should be earmarked as a resource for the EU budget—an idea which must, in any case, be dead in the context of a eurozone-only FTT—is not revived, would not the stamp duty on share transactions route be worth encouraging more?

The Government can rightly feel, from the trend of this debate and from the report we are discussing, encouraged by the support from the EU Committee of this House for their resistance to the Commission’s proposal for an FTT. That case would be all the more persuasive if it was not so often linked to references to Britain having a veto and being determined to use it. We would do much better to advance the case on the grounds of compelling logic and for the reasons that previous speakers have mentioned, such as the loss of GNI to the European Union at a time when it needs to gain it, and many other arguments of that nature.