UK
26 November 2013
The UK is proving that it can recover from a slump without the help of a certain tax, as SLT finds out. Data also reveals stock movement in certain sectors
Image: Shutterstock
Bank of England governor Mark Carney recently said that the UK is celebrating “one of the strongest recoveries in the advanced world”.
The Organisation for Economic Cooperation and Development was equally cheered, declaring that economic activity in the UK has picked up and broadened, supported by a turnaround in private sector confidence, continued monetary stimulus, a policy-induced recovery in the housing market and a more gradual pace of household and public sector deleveraging as automatic stabilisers operate.
Growth is projected to strengthen further in 2014 and 2015, mainly supported by an upturn in gross fixed investment and exports. But despite exceeding the inflation target of 2 percent, headline inflation is projected to fall gradually in the next two years, a report from the organisation said.
”Consistent with its newly adopted state-contingent forward guidance, the Bank of England has announced its intention to keep interest rates low to support the recovery. The welcome efforts to speed up the recapitalisation of the banking sector should underpin financial stability. While headline deficits are expected to shrink as growth recovers, it is important to maintain existing consolidation plans to restore fiscal sustainability.”
This confidence has extended opposition to European policy, as the UK vigorously opposed the Financial Transaction Tax (FTT), in spite of its Robin Hood-esque nature that was seized upon gratefully by the general public.
The UK mounted a legal challenge against the FTT in April 2013 over the use of enhanced cooperation. Its complaint centred around an alleged infringement of rights for any member state that refused to participate, which in turn would distort competition within the EU.
KPMG, which has been following the tax’s progression, said in April that the UK legal challenge would be “very unlikely” to derail negotiations among the 11 participating member states, which include Germany and Spain, or the timing of the introduction of the FTT, which, they added, is likely to be delayed.
The country received a blessing in the slightly unlikely form of the EU Council Legal Service, which declared in September that the tax was “overreaching”. The tax as proposed will be levied not only on risky activities, but also on activities with genuine economic substance, said a document from the EU Council Legal Service.
The EU’s own counsel, which provides legal advice to EU finance ministers, took particular umbrage at the compatibility of one article in the proposal with another. The council said that Article 4(1)(f) of the proposal did not match up with Article 327 TFEU, which concerns equal treatment, proportionality and the principles governing the internal market, in particular the free movement of capital.
The imposition of the FTT on non-participating member states pursuant to the counterparty principle in Article 4(1) would “constitute the exercise of jurisdiction over entities located outside the geographical area concerned by the legislation adopted under the enhanced cooperation,” said the report.
It added that where activities are covered that can indeed be considered to be liable to contribute to financial markets’ risk, it has not been demonstrated that the interests of member states are endangered to a point that the EU should divert from its attitude in principle of restraint as to extraterritorial exercise of jurisdiction.
The council and the UK’s points of contention are, for the moment, in alignment. KPMG pointed out that the opinion and the extent to which the council’s document had been reported reinforces the likelihood that the proposals will be substantially watered down before adoption.
However, it predicted that the drive to raise revenue and the political capital invested in the current proposals may well make it too difficult to abandon the tax entirely, while a series of national FTTs or similar taxes subject to different national rules would not be welcome for taxpayers either.
The Organisation for Economic Cooperation and Development was equally cheered, declaring that economic activity in the UK has picked up and broadened, supported by a turnaround in private sector confidence, continued monetary stimulus, a policy-induced recovery in the housing market and a more gradual pace of household and public sector deleveraging as automatic stabilisers operate.
Growth is projected to strengthen further in 2014 and 2015, mainly supported by an upturn in gross fixed investment and exports. But despite exceeding the inflation target of 2 percent, headline inflation is projected to fall gradually in the next two years, a report from the organisation said.
”Consistent with its newly adopted state-contingent forward guidance, the Bank of England has announced its intention to keep interest rates low to support the recovery. The welcome efforts to speed up the recapitalisation of the banking sector should underpin financial stability. While headline deficits are expected to shrink as growth recovers, it is important to maintain existing consolidation plans to restore fiscal sustainability.”
This confidence has extended opposition to European policy, as the UK vigorously opposed the Financial Transaction Tax (FTT), in spite of its Robin Hood-esque nature that was seized upon gratefully by the general public.
The UK mounted a legal challenge against the FTT in April 2013 over the use of enhanced cooperation. Its complaint centred around an alleged infringement of rights for any member state that refused to participate, which in turn would distort competition within the EU.
KPMG, which has been following the tax’s progression, said in April that the UK legal challenge would be “very unlikely” to derail negotiations among the 11 participating member states, which include Germany and Spain, or the timing of the introduction of the FTT, which, they added, is likely to be delayed.
The country received a blessing in the slightly unlikely form of the EU Council Legal Service, which declared in September that the tax was “overreaching”. The tax as proposed will be levied not only on risky activities, but also on activities with genuine economic substance, said a document from the EU Council Legal Service.
The EU’s own counsel, which provides legal advice to EU finance ministers, took particular umbrage at the compatibility of one article in the proposal with another. The council said that Article 4(1)(f) of the proposal did not match up with Article 327 TFEU, which concerns equal treatment, proportionality and the principles governing the internal market, in particular the free movement of capital.
The imposition of the FTT on non-participating member states pursuant to the counterparty principle in Article 4(1) would “constitute the exercise of jurisdiction over entities located outside the geographical area concerned by the legislation adopted under the enhanced cooperation,” said the report.
It added that where activities are covered that can indeed be considered to be liable to contribute to financial markets’ risk, it has not been demonstrated that the interests of member states are endangered to a point that the EU should divert from its attitude in principle of restraint as to extraterritorial exercise of jurisdiction.
The council and the UK’s points of contention are, for the moment, in alignment. KPMG pointed out that the opinion and the extent to which the council’s document had been reported reinforces the likelihood that the proposals will be substantially watered down before adoption.
However, it predicted that the drive to raise revenue and the political capital invested in the current proposals may well make it too difficult to abandon the tax entirely, while a series of national FTTs or similar taxes subject to different national rules would not be welcome for taxpayers either.
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
