A UK House of Lords committee has called the proposed EU Financial Transaction Tax (FTT) “alive and deadly”.

The comments slamming the FTT as “unjustified and misconceived” were published in a report by the Economic and Financial Affairs sub-committee of the House of Lords European Union Committee.

The proposal has been highly controversial in the financial industry, and even led to EU lawyers branding it illegal in a non-binding legal opinion.

However the European Commission has given the go-ahead for 11 EU member states to implement the tax – known as enhanced cooperation - as opposed to introducing it in all 27 member states. The committee said that this option could significantly damage the UK and rest of the EU.

Lord Harrison, committee chairman, said:
“The committee is still firmly of its original view that an EU Financial Transaction Tax is flawed and potentially damaging to the economic well-being of the UK. What we now have before us is a proposal to allow a breakaway group of EU countries to proceed with their own FTT, which would have a serious negative impact on the UK and other non-participants.

"In giving this the go-ahead we believe the commission has only paid lip service to the legal requirements for enhanced cooperation, and has failed in its duty to countries such as the UK who oppose the move.

“The commission has a duty to all 28 of its Member States equally, and this sort of cavalier approach to legislation risks making losers of us all.”

The committee identified “serious flaws” in the enhanced cooperation method, one being that it could lead to the UK being forced to collect tax on behalf of other member states.

The committee then proceeded to criticise the UK Government for its “slowness to appreciate the potential damage to the UK that such a tax could present”. However, it did welcome the government’s decision to instigate a legal challenge to annul the decision.

The committee then said it was frustrated the Commission had been “dragging its feet” in giving details on what obligations UK authorities would be under to collect the tax. It added it was “unacceptable that the full implications of the proposal were not made clear before the vote on enhanced cooperation took place.

The tax would affect pension funds in the UK even if the country did not sign up to the FTT, according to James Walsh, policy lead: EU & International, UK National Association of Pension Funds (NAPF).

“The real problem with this new tax is that it would hit pension funds and savers in the UK, not just in the 11 participating countries. The FTT would apply when UK pension schemes buy shares in companies or do business with banks based in the 11 FTT Member States.  

“The FTT has made slow progress due to disagreements between the 11 participating nations, but it would be a mistake to think it is slipping off the EU agenda. The new German Government has made a clear commitment to the FTT. Even though Germany is indicating there will be an attempt to protect pensions, the way is now clear for negotiations to re-start.

“EU policy chiefs should be looking for ways to encourage saving and extend workplace pensions to the 60% of EU citizens who currently have no access to one. Taxing saving more heavily will not help.”

The Commission’s dedication to pushing forward with the FTT is evidenced by recent reports that it has appointed EY – formerly Ernst & Young – to assess how the tax would be collected.