Europe’s ‘scattergun’ financial transaction
tax

Photo of Andy Thompson, director of operations at the Association of Private Client Investment Managers & Stockbrokers (APCIMS)There has been
much UK media and parliamentary coverage on the proposed Financial
Transaction Tax (FTT) since the European Commission (EC) published
its proposal on 28th September 2011.

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Most of the coverage has rightly
focussed on the potential negative impact on European GDP.

But what does this all mean for
investment managers, stockbrokers, private banks and their
clients?

 

Unintended
consequences

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The FTT, if agreed, would apply to
all financial transactions and would be set at a minimum of 0.1%
for instruments such as bonds and shares and a minimum of 0.01% for
derivative products where at least one party to the transaction is
established in a European member state. The EC is looking to
implement the FTT from 1 January 2014.

Association of Private Client
Investment Managers & Stockbrokers (APCIMS) member firms
provide an investment service via relationships, be it
discretionary, advisory or execution-only, predominantly to private
clients.

Also, if a ‘consumer’ wishes to buy
or sell securities, then they are likely to do this in the UK via
an APCIMS member. They executed a total of 20.7m trades on behalf
of their clients in 2010, the vast majority of those in UK
equities.

If the FTT is introduced as
proposed, UK private clients would for the first time have to pay
tax when they sell as well as when they buy shares in UK-registered
companies.

Is that really what the EC intended
when it stated in its proposal that “the financial sector should
contribute more fairly given the costs of dealing with the crisis”?
What part did the ordinary man and woman in the street play in that
financial crisis?

 

Questions to reflect
on

What will the proceeds of the FTT
be used for? The EC has stated that like any other tax, an FTT can
“help to contribute to public finances, which are spent in the
public interest”.

Is that fair given the contribution
UK taxpayers are already making to the EU Budget (which in 2010 was
in excess of £13bn gross)?

Can we be confident that the money
will be spent wisely given that the EU Budget has a history of
falling short in terms of financial control and accountability?

The UK is one of 10 member states
that already has a form of FTT in place. So what happens to the UK
Stamp Duty and Stamp Duty Reserve Tax (SDRT) regime?

Some have suggested that an FTT
could be good news in the quest to get the UK to abolish Stamp Duty
and SDRT on UK equities.

While APCIMS has no data to show
whether an FTT would damage retail trading in UK securities, there
is no doubt that it would be incredibly unpopular with private
investors.

As has occurred recently in Greece,
this could make the British public push very hard to be balloted on
whether or not we stay a part of the current EU arrangements; a
situation which seems far removed from the original benefits of a
common market.

 

Double
standards?

One final thought: there is much
said about the fact that this tax should only be considered on a
global scale, a point made repeatedly by the UK’s Chancellor of the
Exchequer.

So why would the impact on pensions
and ordinary investors be any better if this was global and not
just in Europe, and why can the UK argue for a global solution
while having happily retained a domestic “financial transaction
tax” for the past 120 years? Double standards surely?

The UK government should continue
to work with those member states opposed to the FTT.

This will ensure that the EC seeks
to promote employment and economic growth through other means and
does not introduce a tax which, while aimed at a specific target,
catches many millions of ordinary people with its scattergun
approach.

Andy Thompson is director of operations at the Association
of Private Client Investment Managers & Stockbrokers
(APCIMS)