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Tobin Tax Is 'Economic Suicide' UK Business Warns

September 2011 - Tax & Private Client. Legal Developments by Hassans.

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Plans for a European financial transactions tax have been slammed as reckless, unlikely to raise significant revenues and economic suicide by members of the UK's business community.

The attack came as Angela Merkel and Nicolas Sarkozy unveiled their proposals to save the eurozone, which include the so-called Tobin tax, plans that were recently rejected as an alternative to private banking participation in the latest Greek bailout. That German and French ministers seem intent on reintroducing them has provoked strong words from the UK.

Dr Neil Bentley, Deputy Director-General of the Confederation of British Industry (CBI), said: ?To consider the introduction of a financial transaction tax at a time when we should be totally focused on promoting growth is a mistake. Such a tax could have the opposite effect, increasing the cost of capital for businesses and holding back their growth potential."

?This tax would divert transactions to other jurisdictions, like New York and Hong Kong, damaging the UK?s long-term competitiveness as a leading centre for financial services companies, and it is unlikely to raise significant revenues?, he stressed.

In addition, the economic think tank the Adam Smith Institute released a briefing paper on the tax, demolishing the case for its introduction. It is not yet known whether the proposals, if ever accepted, would be applied solely to the 17 eurozone states, or to the 27-member European Union as a whole. The Institute contends that, were it implemented solely in the UK, this would be "economic suicide". It sees the City of London as vital to the UK's economic interests, with foreign exchange turnover having reached over USD1.8 trillion every day in 2010, accounting for 36.7% of the global total. In addition, the Institute argues that the tax could result in capital flight and cross-border arbitrage, which would spell disaster for the UK. The UK could expect to see a significant proportion of its financial sector driven out.

The Institute also rounds on the claim of supporters of a ?Robin Hood Tax? that GBP20bn annually could be removed from the UK financial sector without causing significant disruption, calling the assertion ill-informed and "reckless". Moreover, given that the financial services sector employs over 1m (4% of the UK's total employment figures), the tax could result in job losses both within the financial sector and also within supporting industries through employment spillover effects.

It is thought that the government will take a stance against the tax, with the UK likely to veto the tax were it officially proposed by Merkel and Sarkozy.


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