Sarkozy-Merkel trading levy plan is branded disastrous for Britain
A tax on City trading mooted by the French president and German chancellor would damage economic growth in the UK, a business group has claimed.
Nicolas Sarkozy and Angela Merkel unveiled vague proposals for a European Financial Transactions Tax (FTT), which is in part designed to curb speculative trading, after their meeting in Paris.
The CBI warned the tax would hit business growth by increasing costs and divert investment away from the UK - concerns echoed by accountancy firm BDO.
Shares in Europe's largest stock exchanges - including the FTSE 100 in London - slid as traders digested the implications an FTT would have on financial markets.
An FTT is a tax placed on specific types of financial transaction - but is not a taxing of the financial institution itself.
Dr Neil Bentley, CBI deputy director-general, said: "To consider the introduction of a Financial Transaction Tax at a time when we should be totally focused on promoting growth is a mistake.
"Such a tax could have the opposite effect, increasing the cost of capital for businesses and holding back their growth potential.
"This tax would divert transactions to other jurisdictions, like New York and Hong Kong, damaging the UK's long-term competitiveness as a leading centre for financial services companies, and it is unlikely to raise significant revenues."
Shares in the financial sector suffered following the proposals.
Angela Foyle, partner at BDO LLP said there was insufficient analysis of costs and benefits of an FTT, which has never been introduced on any real foreign exchange market.
The Government is expected to clash with its French and German counterparts over the plans.