Britain’s upper house of Parliament backed Prime Minister David Cameron over a proposed European tax on financial transactions, saying the levy risks damaging London’s financial district.
John Roper, chairman of the House of Lords European Union Committee, wrote to Treasury minister Mark Hoban urging him to explain the steps the government is taking to prepare for the possibility that the euro region presses ahead with the tax on its own. Such a move “could still have a detrimental impact on the U.K,” he said.
“We remain to be convinced that such a tax would either reduce instability in the market or prevent another financial crisis,” Roper said in the letter, dated Nov. 29 and released by the committee in London today. “We note with concern, not least in the context of the ongoing economic difficulties across the EU, that the Commission’s impact assessment concludes that the tax is likely to induce a loss in GDP between five and 20 times larger than the revenues raised from the tax.”
Cameron has said he will oppose adopting a tax, arguing banks would move business to jurisdictions outside the EU that don’t impose such a levy. The premier argues that 80 percent of the money raised would come from the U.K. “I am sometimes tempted to ask the French whether they would like a cheese tax,” he told lawmakers on Nov. 7.
Other areas of tension include disputes over the implementation of Basel III banking rules and a legal challenge to the European Central Bank over its location policy for clearing houses. Cameron said Oct. 28 that London’s position as Europe’s leading financial center is under “constant attack” from Brussels.
The Lords panel, which is carrying out an inquiry into the proposed levy, is also concerned that it might prompt business to leave the U.K., reduce the competitiveness of its financial-services industry and lead to revenue being transferred to EU countries that execute transactions in London, Roper said.