Lord Lawson writes on John Chown's report "The Tobin Tax rears its ugly head, again".
In the burgeoning debate over whether the UK would benefit from leaving the European Union there are those who argue that we cannot afford to do so as EU membership is of vital importance to the City of London.
Certainly, the success of our massive financial services industry is of the first importance to the British economy, and should continue to be so once it has been cleaned up in the wake of the culpable recklessness of all too many UK bankers during the Blair-Brown years.
But the truth of the matter is that, so far from EU membership being of benefit to the UK financial services industry, it is rapidly emerging as perhaps the greatest single threat to its future success.
John Chown’s admirable analysis of the coming EU Financial Transactions Tax brings this out very clearly.
It is in fact part of a wider picture. So far as the financial services sector is concerned, the EU is currently engaged in a frenzy of misconceived regulatory activism. The motivation for this is threefold.
In addition to the innate hunger for power of a European bureaucracy untrammelled by democratic accountability, there is a desire to punish the banks and others held responsible both for the excesses that led to the 2007-8 banking crisis (largely true) and for the ongoing Eurozone crisis (wholly false). And on top of this, there is in some quarters a desire to cut the City of London, a more important financial centre than the rest of Europe put together, down to size.
In the insurance sector the coming EU regulation, known as Solvency II, has been variously described by the mild-mannered Andrew Bailey, Chief Executive of the Prudential Regulation Authority, the relevant part of the Bank of England, as ‘shocking’, ‘lost in detail and vastly expensive’, and ‘frankly indefensible’.
As John Chown demonstrates in this paper, the coming EU Financial Transactions Tax is, if anything, even worse. Designed both to punish the bankers and to raise money for the EU budget, its principal effect will be to drive financial business away from the EU (including the UK) to more hospitable jurisdictions elsewhere.
Belatedly conscious of this danger, the EU is now attempting to extend the FTT so that any transactions involving Eurozone securities of any kind, wherever they are conducted, are caught by the tax. This extraterritoriality may well be illegal: it is clearly unenforceable. And the US has already made clear that it will have none of it.
The position of the UK, within the EU, is more difficult. The present coalition Government has already announced that it intends to challenge the legality of the FTT proposals in the European Court; but the outcome is uncertain.
There are only two world-class financial centres: London and New York. That it should be considered in the interests of Europe to drive business away from London, to the benefit of New York is both perverse and unacceptable. John Chown and the CPS have performed a valuable service in drawing attention to this complex but important issue.
This foreword by Lord Lawson of Blaby appears in "The Tobin Tax rears its ugly head, again", released today by the Centre for Policy Studies.