The U.K.'s challenge to the introduction of a tax on financial transactions in the European Union was rejected by the European Court of Justice, leaving the pensions industry concerned over the negative effect on savings.
The financial transaction tax will be adopted by 11 EU states and imposes a tax on certain financial activity, including a 0.1% charge on stock and bond transactions and a 0.01% charge on derivatives trades, when any part of the trade is related to one of those countries.
Ministers in the U.K., which will not adopt the tax, challenged the legality of the tax. They were concerned it would damage British firms and the cost would be passed onto savers.
The decision, passed down Wednesday, was met with disappointment by the U.K. financial industry.
“The FTT is not the best way to reduce excessive risks or tackle bad behavior in the markets,” said James Walsh, policy lead, EU and international, at the National Association of Pension Funds. “In addition, the cost of this tax would undoubtedly be passed on to the millions of private savers and pension scheme members in the U.K. by the financial institutions and banks that manage their investments.”
Mr. Walsh said the NAPF is urging the U.K. government “to remain vigilant against this threat to British savers and pensioners.”
The NAPF has in the past said a financial transaction tax would cost European pension funds more than €4 billion ($5.6 billion) a year, while the Association of the Luxembourg Fund Industry has said the tax would lead to “the death of the European fund industry.”
The Confederation of British Industry, a lobby group for businesses in the U.K., reiterated its view that the tax “will damage growth, jobs and investment across Europe.”
“It will have a far-reaching impact on non-participating member states, by including extraterritorial reach into financial services activity conducted in the U.K.,” said Katja Hall, chief policy director at the CBI, in a news release. “As the U.K.'s largest single trading partner, a healthy European economy is in everyone's interests, so we urge that this damaging tax is reconsidered.”