Before we get into this piece, it is important to understand that London is one of the world’s leading financial sectors. It is also important to recognize that Britain all but abandoned heavy industry after Mrs Thatcher’s premiership and fully embraced its role as a hub of the financial and service sectors in the global economy.
It won’t have escaped anyone’s notice that Europe is in the middle of a crisis brought about by the profligate spending in many countries, over many years and financed through the issuance of bonds (i.e. the creation of a debt mountain). The sovereign debt crisis has come to a head with Greece, Ireland and Portugal finding themselves increasingly unable to meet their obligations (for a variety of reasons) and being forced to accept an IMF/EU bailout package. You could be forgiven for thinking that the bailouts would be the end of the story, but fears of “contagion” to other countries within the Eurozone and nagging doubts that Greece will default anyway, have kept the saga running.
One idea to recoup some funds that has been floated by the EU Commission is to tax financial transactions across the EU. The tax would raise about €57 billion across the EU and come into force in 2014. It would be levied at a rate of 0.1% on all transactions involving an EU based partner.
Authorities in the UK estimate that about 80% of the tax revenue would come from institutions trading in London and, to quote President de Gaulle (on the subject of the UK joining the EEC), the British have said “non”! The UK fears that such a move would drive businesses to move outside of the tax region, leaving the UK. The Brits have made it pretty clear that they see this as a veto topic, so the Commission will have to return to the drawing board.