London traders to pay €17bn a year in transaction tax

Traders in the City of London will pay up to €17bn a year under the EU’s plan for a financial transaction tax but none of it will go to the British Treasury because they have opted out, according to accountants Ernst & Young.

Ireland has also opted out, even though the European Commission estimated that the country would stand to gain around €750m a year from the tax, but the Government says it fears losing jobs from the financial services sector if it adopted the tax.

Ernst & Young, one of the big four accountancy firms in the world, points out that 75% of transactions that would be subject to the tax take place in London, and at least 60% involve at least one party based in another EU country.

The European Commission estimated the tax, with all 27 EU countries involved, would net governments €57bn in its first year.

Transactions that take place in London but which do not involve another party based in the rest of the EU would be liable for a total tax of about €3bn, which would also go to the British Treasury if the UK had signed up to the tax.

But the City traders will save on this sum as long as Britain stays out. However, this does not take into account that Britain imposes stamp duty, as does Ireland, but only on share and bond trading and not on derivatives.

Eleven EU countries have agreed to go ahead with the tax — they include the biggest members of the eurozone including Germany, France, Spain and Italy.

Europe Minister Lucinda Creighton said yesterday that many of the financial institutions based in Ireland are offshoots of those from the City of London: “It would be foolhardy to opt in and risk them relocating to London or elsewhere. We would be foolish to adopt this financial transaction tax without it being done at G20 level.”

The European Commission will come forward with a revised proposal for the 11 countries in the coming weeks.