Britain and the European Union were on Wednesday headed for a confrontation after European Union President Jose Manuel Barroso proposed an EU-wide financial transaction tax as part of a broader strategy to overcome the deepening economic crisis, which he described as the “biggest challenge” facing Europe.
The British government, led by the Eurosceptic Conservative Party, promptly shot down the proposal saying it would “resist” any such move, unless applied globally.
“We would not do anything that is not in the U.K.'s interests,” a Treasury spokesperson told the BBC.
Britain was not opposed to the tax in principle but insisted that it must be introduced globally.
The tax, dubbed the Tobin tax after the American economist James Tobin, who first proposed it in the 1970s, would raise about €57 billion — £50 billion — a year, and come into effect in 2014.
Mr. Barroso, delivering his annual State of the Union address in Strasbourg, said that banks must “make a contribution” in dealing with the crisis.
A veto by Britain would mean that the tax would be restricted to the eurozone rather than being rolled out across the EU.
Predictably, the proposal was also opposed by British businesses. The Confederation of British Industry argued that it would damage Britain's status as Europe's leading financial centre and “divert activity to other financial hubs like New York or Hong Kong”.
Officials in the City, London's financial district, claimed that about 80 per cent of any such EU-wide levy would come from London.
Trade unions and campaign groups such as the Robin Hood Tax Campaign, who hold banks responsible for Europe's worst post-war economic crisis, welcomed the move.
The Trade Union Congress, which represents the majority of Britain's unions, called it “a major step forward” and urged the government to support it
“It would also help rebalance the economy, address the under-taxing of the financial sector, and reward long-term investment,” said TUC General Secretary Brendan Barber.
Under the proposals, a financial tax would be levied at a rate of 0.1% on all transactions between institutions if at least one party is based in the EU.
The Commission said the financial sector had played a role in the current “economic crisis” and was “under-taxed” compared with other sectors. The levy would ensure that it too made “a fair contribution” at a time of fiscal consolidation in member states.