The Financial Times' Alex Barker has seen a draft version of the financial transaction tax which is to be implemented by 11 euro area nations, and writes that it:
casts a wider net than expected by adding anti-avoidance measures to the original plan for an EU-wide levy, so that financial business does not decamp to safe havens.
The plan will levy a 0.1 per cent tax on stock and bond trades, and a 0.01 per cent tax on derivatives. It is imposed on any transaction involving a financial institution with its headquarters in the area, or on any transaction on behalf of a client based in the tax area.
It will also apply to transactions based on where the financial product was issued.
The news makes Britain's decision to opt-out from the tax look increasingly questionable. We already have a transaction tax of 0.5 per cent on any trades involving British stock — called stamp duty — which hasn't impacted on Britain becoming a centre of European finance. And the anti-avoidance measures included in the proposed draft will hit a relatively hefty proportion of trades involving the City.
Overall, around €30bn-€35bn is expected to be raised by the FTT, while similar measures implemented in the UK could raise around £8bn for the exchequer, according to the Robin Hood Tax Campaign, who say:
When our European neighbours are making their City firms pay for the damage they've caused it is shocking that our Government is refusing to get our banks to do the same.
With the UK facing welfare cuts and increased austerity, it is incomprehensible that the Chancellor should turn down the opportunity.
While the move looks likely to be effective on a revenue-raising front, it is less so when it comes to altering behaviour — the other key motivation for financial transaction taxes. The EU has less high-frequency trading (HFT) than the US, and the EU-wide FTT doesn't include a measure proposed by the Hollande government in France which would impose a minuscule tax on requests for quotes. That tax was aimed at stopping a type of HFT — quote spamming — which involves very few actual stock purchases; its absence leaves that abuse open.
Similarly, the value of the tax is low enough that it's unlikely that it will promote the "buy and hold" mentality that many were hoping for. Markets will still be volatile, and speculators will still rule. But hopefully the revenue will help.