Martin Flanagan: EU’s Tobin plan is a taxing problem for the City and UK government

IN SOME ways the new financial transaction tax proposed by Brussels is similar to the 50 per cent tax rate in the UK on people earning over £150,000.

Both are a matter of dispute as to whether they economically stack up so that the regulatory effort is worth the tax candle. Yet many feel there is a political case for the two taxes to show we are all in this desperate recovery together, and that the financial sector has still not adequately paid for the mess they have got us into.

But one difference is that the “Tobin tax” will undoubtedly fall disproportionately on the City of London, where a great majority of European financial transactions happen.

This does pose a real danger that big City institutions and our foreign exchange markets could move to New York, Singapore, Shanghai or wherever.

For good or ill, financial services, even though tarnished, is of major importance to the UK. It contributes about 8 per cent of our GDP, and about £1 in every £10 of tax.

The last thing our pretty feeble economic recovery needs, whether or not fears about a “lost decade” of growth looming prove correct, is to drive one of our star players abroad.

Obviously, this does not matter as much to the European Commission as the UK, as Brussels is more concerned with the broader picture, namely the danger of mainland Europe going broke and the euro crashing in flames.

The CBI fulminated yesterday that the financial transaction tax proposal adopted by the EC is “completed misguided” in these parlous times. It says the tax will hammer financial organisations with increased cost of capital, hold back their growth and raise relatively minimal (about £47 billion) tax in return. London is patently very vulnerable as four‑fifths of this tax would be levied on City institutions and only one‑fifth from the rest of the eurozone, a wholly disproportionate impact. The commission has said that the tax would be imposed in the eurozone alone if the UK vetoed its introduction.

The timing is clearly bad for the UK as, even without the Tobin tax, our greater regulatory crackdown on banks has led to increasing scrutiny by companies of whether this is still the best place to do business.

The EC decision means Chancellor George Osborne, the Treasury and British financial lobby groups have not won the battle to persuade Brussels that the financial transaction tax is a bad idea.

As such, the battle will now switch to the UK’s fallback position of arguing that any such tax must be implemented globally or not at all.

It would be practically difficult, yes, but otherwise we will have clearly lost out both as a financial centre and economically.

In the eye of the hurricane, or at the least of bad publicity

You can’t keep Clydesdale Bank down at the minute. The bank, a core part of the UK operations of National Australia Bank, seems to be constantly in the news: the target of takeover approaches, being downgraded in the credit markets, or, Baron Hardup‑like, slashing the value of its workers’ pensions. Sometimes on the same day.

NAB UK has apparently fended off the takeover attentions of NBNK Investments and Hugh Osmond’s financial investment group Sun Capital in the past week or so. Both those UK banking consolidation vehicles clearly wanted NAB’s UK branch network as a stepping stone to gain banking market share, and help win the auction of the 632 Lloyds branches on the takeover block.

But NAB has only itself to blame for the downgrade of its credit by rating agency Moody’s. The problem was that when NAB’s finance head Mark Joiner seemed to pour cold water on the takeover approaches, saying there would be no fire sale, the wind got in his sails. He started talking down UK prospects generally, and floating the idea of eventually divesting Clydesdale and its sister UK bank, Yorkshire Bank, farther down the line when prices might be better.

It would be interesting to be a fly on the wall in NAB chief executive Cameron Clyne’s office at present. Clyne has made an art form of being non‑committal on how much he loves the UK business long‑term, while always being careful to praise the subsidiary’s impressive record of profitability and avoidance of banana skins since before the credit crunch of 2007.

Joiner also kept all options open. But, in contrast with his boss, he did it with a more muscular, Aussie Rules financial vocabulary that had a greater negative market impact than he obviously thought his words would. That’s why things have gone a bit moody, so to speak, around Clydesdale and Yorkshire.

How do you keep morale up in a UK operation if staff feel they are not particularly seen as a long‑term asset by a parent company thousands of miles away?