LONDON, April 3 A planned EU tax on transactions
would raise the cost of issuing UK debt by nearly four billion
pounds if it were in force this year even though Britain will
not impose the levy, a study said on Wednesday.
Eleven euro zone countries intend to introduce the tax on
stock, bond and derivatives transactions next January to help to
make banks pay for aid they received in the financial crisis.
There are provisions to ensure the levy is applied no matter
where in the world securities from the 11 states are traded.
However, it is still unclear how and by whom the tax would be
collected, especially in non-participating countries.
A pan-EU proposal failed due to opposition from Britain,
Sweden and other member states.
The City of London Corporation, home to a large chunk of
Britain's financial services industry, Europe's biggest, said a
study it commissioned estimates that the cost of capital will go
up even for countries not imposing the tax.
The cost of capital raising for firms would go up by 100
basis points or more in non-participating member states because
of reliance on debt capital markets, the study said.
"The financial transaction tax is an ill-conceived idea that
risks significantly damaging economic prospects across Europe,"
said Mark Boleat, chairman of the corporation's policy
"Not only would it adversely affect the cost of sovereign
debt but it would also make it more difficult for businesses
across the continent to access funding," Boleat said.
The study by consultancy London Economics said the tax would
distort competition and have a greater negative impact on
returns from corporate and sovereign debt from non-participating
There could be a "substantial" reduction in activity on the
repurchase or repo market due to increased costs, putting them
at a disadvantage to secured loans, the study added.
Last week a panel of UK lawmakers criticised the government
and the financial sector for not doing enough to stop the tax,
saying Britain should go to court to halt the plans.
Manfred Bergmann, European Commission director for indirect
taxation, said last month that the tax would not harm Britain
and its government could not be forced to collect the levy.