Towards a Financial Transactions Tax? - European Union Committee Contents


The House of Lords EU Economic and Financial Affairs and International Trade Sub-Committee, chaired by Lord Harrison, is launching an inquiry into a Financial Transaction Tax and its implications for the UK. We invite you to contribute evidence to this inquiry.

The financial crisis, and its associated impact on Government finances, has intensified debate about the use of taxation either as a way to correct the effects of excessive risk-taking on financial institutions or as an instrument to ensure that the financial sector makes a substantial contribution to public finances.

On 28 September the Commission published its proposal for a Directive on a common system of Financial Transaction Tax (FTT). France and Germany are expected to bring forward their own proposal in the near future. The French Presidency of the G20 has made discussions over a financial transaction tax one of its priorities.

From a UK perspective it is inevitable that the proposition of a tax on the financial sector will attract attention given London's status as Europe's largest financial centre. The UK Government have expressed concerns about introducing such a tax unless it is done on a global basis.

The purpose of the inquiry is to investigate the rationale behind the introduction of a financial sector tax, and will focus primarily on the Commission's proposal for an FTT. It will consider the potential risks, benefits and shortcomings of an FTT and its significance for the City of London. It will assess whether an FTT could plausibly be implemented at an EU level, or whether it will only work effectively if implemented globally.

The inquiry will not consider the debate on an FTT as a possible revenue stream for the EU budget. It will nevertheless welcome views on any other possible uses of revenues arising from an FTT.

Particular questions raised to which we invite you to respond are as follows (there is no need for individual submissions to deal with all of the issues):

PART I General questions on financial sector taxation

(1)  Is there a case for the introduction of a tax on financial transactions? Does the current exemption from VAT for most financial and insurance services lead to a tax advantage for the financial sector?

(2)  What would be the most appropriate form for a taxation of the financial sector? Would a Financial Activities Tax (FAT) be a preferable means of taxing the financial sector? Would other variations (e.g. a currency transaction tax, a securities transaction tax or a financial tax on derivatives) be a more desirable form of taxation?

(3) What lessons can be learnt from the experience of other countries (such as the transaction levy introduced in Sweden in 1984 and abolished in 1991) in relation to a financial sector taxation scheme?

PART II Specific questions on the Commission's proposal for an FTT

Rationale for an FTT and scope

(4)  What is your assessment of the Commission's objectives as contained in its proposal for an FTT? Are they fair and appropriate?

(5)  Does the Commission proposal for an FTT reflect the most desirable design for an FTT?

(6)  On which transactions should the FTT be levied? Is it appropriate for the FTT to be levied on shares, bonds, derivatives and structured financial products as suggested by the Commission? What should be the rate of the FTT?

(7)  Is it appropriate for the FTT to be applied on the basis of the residence principle as proposed by the Commission? How likely is the residence principle to work in practice?

(8)  How significant is the potential for the FTT to raise significant revenues? How reliable would it be as a revenue stream? Where would the true incidence of the FTT fall? Should the revenues arising from the FTT be used to finance the deficits of Member States?

Impact and effectiveness

(9)  Would the Commission's proposal for an FTT be effective in addressing short term volatility and curbing harmful speculation? Would it reduce excessive risk taking?

(10)What would be the impact of the FTT on market liquidity? What effect would the FTT have on speculation in sovereign debt markets?

(11)How easily could the FTT tax be circumvented by market operators?

Impact of the FTT in the UK

(12)What impact would the FTT have on the UK's financial services sector and the City of London, as well as the UK economy more broadly? If a significant proportion of any transaction tax accrued in London, would the burden necessarily fall on British citizens?

(13)How would you assess the likelihood that the FTT would cause financial services to relocate outside the EU, or contribute to a migration of financial transactions towards less regulated parts of the financial sector? Does the UK experience with the stamp duty demonstrate that a modest FTT is not inconsistent with maintaining a successful stock exchange?

(14)Will the FTT duplicate existing taxes in countries which have already implemented a bank levy, such as the UK?


(15)Could such an FTT be plausibly introduced at an EU level, or would an FTT only be effective if introduced globally? Should an FTT be introduced at EU level regardless of whether it is introduced at a global level? In the event that an FTT is not introduced at EU level, would there be a case for its implementation by euro area countries alone?

Those responding to this call for evidence are not necessarily expected to address all these points but instead to focus on those issues on which they have special expertise or about which they are particularly concerned.

The deadline for written evidence is Monday 7 November 2011.

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