Reading the headlines on Friday (31 May), it seemed that the EU’s proposals for a Financial Transactions Tax (FTT) were to be dropped. “Europe rows back on FTT plans “ announced the Daily Telegraph; “The European Union is rowing back on its plan for an 11-nation tax on financial transactions” echoed the Times; “FTT may not be the mighty weapon activists hope for” regretted The Guardian (the Financial Times was silent).
These news reports – based on unnamed Brussels sources – suggested that the FTT tax rate could be drastically reduced from its planned 0.1 per cent levy on equity and debt transactions to just 0.01 per cent, bringing the annual take to a tenth of the original €35 billion (£30 billion).
Although the Centre for Policy Studies has repeatedly criticised the EU’s plans for an FTT – see John Chown’s reports here and most recently here – we should not start celebrating. For if these news reports are true, then all that has happened is that:
On top of that, throughout the process, the Commission has been remarkably furtive. Getting eleven countries to sign up in October, and having this approved by the European Parliament in December, then commenting that details would be published ‘in due course’ (which turned out to be February and even this only after a leak) is not a transparent and democratic process. Nor is the most recent leak and counterbriefing.
So make no mistake: this is not a victory for those of us who are critical of the FTT. The new proposals would still be very damaging for the UK: much economic activity in our most important sector, the financial services industry, would be subject to an EU tax despite the fact that the UK had vetoed this tax (thus violating the principle that tax questions in the EU are supposed to be subject to unanimity). And however low the starting rate, the bureaucratic and regulatory pressures needed to collect the tax would still drive business from the UK to the US. As Nigel Lawson explained in the Foreword to our recent FTT paper, this is both “perverse and unacceptable”.
And something more worrying may be afoot. For the original leak has all the marks of a classic piece of expectation management (or spin doctoring). A story is leaked to the press with a favourable gloss on an unpopular proposal, hoping to ensure that when the actual measure comes out (with the mischief buried in the small print) it is no longer considered news – and so is then ignored. Note that, far more quietly than the original leak, EU tax commissioner Algirdas Semeta has since denied reports that the FTT is being unravelled by member states – and it is far too early to say what the eventual compromise on the FTT between the Member States will be. And see here for an analysis by John Chown of the “non-paper” issued by the EU following the meeting two weeks ago which assumes that the FTT is still proceeding largely as expected.
The war goes on.