The European Union's tax chief on Thursday rejected UK opposition to a planned levy on financial transactions, saying it would dampen risky trading and barely dent growth.
EU Tax Commissioner Algirdas Semeta drew scorn from British MPs when he said a bloc-wide financial transaction tax would cut economic growth by a negligible 0.01 percent annually and raise 10 billion euros for a cash-strapped UK treasury.
It would also rein in high-frequency trading (HFT) which uses computers to post huge numbers of share orders in fractions of a second, a practice that alarms some regulators.
The proposal as it is designed would allow us to address this HFT issue in very concrete terms, Semeta told a panel drawn from the Lords.
Britain has said it will veto an EU-wide tax on stock, bond and derivatives trades, which requires unanimity among the 27-member countries. Sweden and the Czech Republic also oppose the move.
We do find ourselves in a position of buying a pig in a poke. There are too many unanswered questions, the committee's chairman, Lyndon Harrison told Semeta.
John Kerr told Semeta his tax was deliberately designed to focus on a particular sector, kill it and drive it offshore.
Are you arguing HFT is immoral? Kerr said.
France is planning a levy on HFT trades and fellow euro zone country Italy may follow suit. Semeta said an EU transaction tax would reduce HFT volumes by 70 percent.
There is significant growth in this specific phenomenon and of course we see risks associated with this phenomenon, Semeta said.
Committee members said the tax was a gamble that would force business outside the EU, trigger massive trade disputes and would not be copied by countries like the United States.
Few in Britain's financial sector, the EU's largest, believe the tax will be introduced across the EU and finance ministers meet next month to plot a course forward.
MPs worry about the impact on Britain even from a tax confined to euro zone countries, seen as the likely outcome.
The Ernst & Young sponsored economic forecasting ITEM group estimates that even if Britain is outside the tax area, the sheer size of its markets could mean it will generate around 60 percent of revenues that would only flow to euro zone coffers.
It's premature to say where we will end up with our discussion. Our understanding is that a very narrow based financial transaction tax has its disadvantages and provides distortions of the market, Semeta said.
A transaction tax would make banks pay for the damage they caused in the financial crisis which needed 4.6 trillion euros of taxpayer money to shore up lenders, Semeta said.
Britain has already imposed a balance sheet levy on banks which raises 2.5 billion pounds a year and has long had a stamp duty on share transactions, which France is also planning.
(Editing by David Cowell)