LONDON (Reuters) - 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 committee.
“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 EU states.
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 parliamentarians 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.
Reporting by Huw Jones; editing by Stephen Nisbet