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UK at odds with Europe on City tax

The UK looks to be on a collision course with European leaders over controversial proposals for a tax on City trading.

European Commission (EC) president Jose Manuel Barroso said a financial transaction tax (FTT) for all 27 EU countries could raise 55 billion euros (£47 billion) a year and would ensure the sector made "a fair contribution" in an austere economic climate.

However, the Treasury said it would only back a financial transaction tax which was applied globally, while UK business leaders said introducing such a levy now would be "misguided".

Traders ditched banking shares following Mr Barroso's speech, with Royal Bank of Scotland and Lloyds Banking Group off more than 2%.

However, the British Government is facing a fight on its own shores as unions and campaign groups backed the so-called Tobin tax, which could support causes such as climate change and global poverty.

Algirdas Semeta, EC commissioner for taxation, customs, anti-fraud and audit, said: "Our project is sound and workable. I have no doubt this tax can deliver what EU citizens expect - a fair contribution from the financial sector."

Germany and France have pressed the EC to propose the tax on all financial investment systems in a bid to show taxpayers they are committed to recouping some of the costs of the banking crisis.

EU taxation proposals require unanimous support from the region's 27 national governments to become law.

A spokesman for the UK Treasury said it will engage with its international partners on FTT proposals and has no objection to them in principle.

He added: "But any financial transaction tax would have to apply globally and there are a number of practical issues that need to be worked through."

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