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At various times over the last thirty years politicians, economists and bankers have debated the case for introducing new taxes on financial transactions, following a proposal by the American economist James Tobin that a tax on currency trades could dissuade harmful speculation by financial markets.

For many the need for a ‘Tobin Tax’ was shown by the banking crisis in late 2007 and its devastating impact on the world economy. Taxpayers in many countries have provided considerable sums to bail out individual companies and restore stability to the global system – and new taxes on the banking system would appear to be a fair way of recovering these costs. In addition the ability of some of the largest banks to return to robust financial health, and to reward their top personnel handsomely, has increased the political pressure for a change – seen in the popularity of the campaign launched in early 2010 for a Tobin-like ‘Robin Hood Tax’.

For the next two years the case for some form of international levy on the banking system was explored by the International Monetary Fund and discussed by the G20 nations – culminating in the G20 summit held in Cannes in November 2011, but without a consensus being reached. In September 2011 the European Commission published proposals for an EU-wide tax on financial transactions (FTT). Although this idea received support from some EU States, the Coalition Government has been strongly opposed, on the grounds that such a tax would only be viable if implemented on a global scale, and that the UK’s own banking levy, which was introduced in January 2011, meets many of the aims set for an FTT without some of its possible drawbacks. Other countries have also raised concerns, and in June 2012 European Finance Ministers agreed that the measure would not be proceeded with.

In October 2012 eleven Member States agreed to pursue the option of having a Tobin-like levy on a smaller scale. Under the procedure of ‘enhanced co-operation’, if Member States have failed to obtain an objective within a reasonable period of time, a minority of countries may pursue a proposal, provided at least nine States participate. This use of this procedure was approved in January 2013, and the Commission published draft provisions the following month.

Although the UK is not one of the eleven participating Member States, in April 2013 the Government lodged an appeal with the European Court of Justice, on the grounds that, in its current form, it would override the rights, competencies and obligations of the Member States who were not participating, and, as such, fail to meet the conditions established in the Treaty for ‘enhanced cooperation’. At the time Treasury officials were reported to be confident that negotiations could ensure that a final FTT did not affect financial institutions outside the eleven States, but that making a legal challenge at this early stage would ensure that the UK could pursue the option, if this assessment proved over-optimistic.

On 30 April 2014 the Court dismissed the UK’s appeal; in a press notice on its decision the Court stated, “the Court finds that the contested decision does no more than authorise the establishment of enhanced cooperation, but does not contain any substantive element on the FTT itself. The elements of a future FTT challenged by the United Kingdom are in no way constituent elements of the contested decision.” As one commentator has noted, the Court “essentially dismissed the UK’s action on the basis that it was premature. The CJEU nevertheless emphasised that it remains open to non-participating member states to contest the measures actually implemented at a subsequent stage.”

Subsequently European Finance Ministers discussed the issue at a meeting on 6 May, when it was noted that, “the participants wish to implement the tax in stages, with the first stage applying to shares and some derivatives; and that they wish to implement this first stage by 1 January 2016.” No further details have been published to date.

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