By Mark Kleinman, City Editor
A proposed European tax on financial transactions would cost pension funds and insurance companies up to €50bn each year, dealing a significant blow to the continent's economic recovery, according to a new report.
Sky News has obtained a copy of a study undertaken on behalf of the Association of Financial Markets in Europe (AFME), whose members include the city's major investment banks.
The research, carried out by the consulting firm Oliver Wyman, comprises one of the most detailed quantitative assessments to date of Brussels' Financial Transactions Tax (FTT), which is scheduled to be introduced next year.
Although the FTT has run into considerable opposition from business groups - as well as politicians such as George Osborne, who is mounting a legal challenge against its introduction - EU member states including France and Germany say they remain committed to it.
The AFME report argues that the new levy would cost insurers, asset managers and pension funds between €30bn and €50bn annually by driving up direct trading costs and triggering a decline in the value of securities issued prior to the FTT's introduction.
The FTT would also have a significant effect on the costs to governments and companies of administering their finances, the report warned.
"We estimate that annual costs for EU-11 corporates will increase by €8-10bn as financing and risk management become more expensive," it said.
"This represents 4-5% of post-tax corporate profits in the affected economies, and will have a material impact on the ability of corporates to invest or pay dividends."
Simon Lewis, the chief executive of AFME, said: "The proposed financial transaction tax will damage markets beyond the 11 states that are considering it, across Europe and also internationally.
"This latest report clearly demonstrates the harmful impact of the tax on the end-users of financial markets - such as governments, corporates, pension funds, insurers and asset managers - and these negative effects will, in turn, will have serious implications for the real economy, resulting in reduced income generation from long term savings and corporate investments."
The proposals hatched in Brussels would impose a 0.1% levy on stock and bond trades and 0.01%, and would target a yield of between €30bn and €35bn in annual revenues.
Among the opponents of the tax, which critics say would seriously undermine the city despite the UK's decision not to join the FTT, have been Lord King, former Governor of the Bank of England, and John Cridland, director-general of the CBI, the employers' lobby group.
The 11 countries backing the tax are Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.
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