“There is no political leader in Britain today who could have come away with a deal that meant surrendering £30 billion worth of tax revenues from the City of London.”
Trevor Kavanagh, BBC Politics Show, 11 December 2011
“[The UK financial industry] pay 10p in every pound gathered by the UK taxman. France wants to grab £30 billion of that for Brussels to squander”
Trevor Kavanagh, The Sun, 12 December 2011
The weekend’s news agenda saw considerable focus on the subject of the European Union, following Prime Minister David Cameron’s veto of proposed EU treaty changes last Friday.
The move sparked a mixture of praise and anger from both sides of the political spectrum. Among those who praised the decision was Sun columnist Trevor Kavanagh, who stated on two separate occasions that the UK’s financial industry would have suffered revenue losses of £30 billion had the changes taken place.
But how accurate was this figure?
Finding no other conspicuous source of the claim, Full Fact began by contacting Mr Kavanagh to determine how the £30 billion figure had been calculated.
He explained that the figure was derived from a claim made by the European Commission President José Manuel Barroso that the Europe-wide Financial Transactions Tax (also known as the ‘Tobin Tax’) would likely raise €57 billion a year.
In addition, the City of London estimates that 80 percent of financial transactions occur in London.
Admitting variations in the exchange rate, the current rate (as of writing: 1GBP=1.18EUR) would mean the cost to the UK on these terms amounts to approximately £38.6 billion a year.
Having clarified that the £30 billion figure was a low approximation of this, Mr Kavanagh’s calculations in themselves seem to be sound.
However, this would be to assume that the two premises – that the tax would raise €57 billion annually and that 80 percent would come from the UK – were both correct claims in themselves.
Would a Financial Transactions Tax (FTT) raise €57 billion a year?
The original claim by Mr Barroso was made at his State of the Union address to the European Parliament on 28 September 2011.
In the address, Mr Barroso claimed to estimate the revenues from a Financial Transactions Tax at €55 billion a year – close to the €57 billion cited by Mr Kavanagh. The European Commission corroborated this estimate in their press release – this time stating precisely that the tax could raise €57 billion a year.
What wasn’t made clear by either Mr Barroso or the press release are the potential caveats to this estimate.
In an Impact Assessment for the FTT, published by the European Commission, the possible ranges of revenue estimates were considerable.
While not referring specifically to a 0.05 percent tax rate (the rate proposed by Mr Barroso), it indicated that a 0.01 percent rate could deliver anything between €16.4 to €43.4 billion in revenues, depending on demand elasticity (by how much transactions could potentially decrease as a result of the tax).
Similarly, a 0.1 percent FTT rate could produce anything between €73.3 and €433.9 billion, again depending on the disincentive effects of the tax upon the conduct of those making the transactions themselves.
Hence, while the €57 billion estimate is shared by the European Commission, we should also give consideration to the wide margin of error apparent in the Commission’s own impact assessment.
Do 80 percent of EU financial transactions occur in the UK?
Full Fact initially tracked the 80 percent claim down to figures mentioned by the City of London. However, after contacting the organisation, they were unable to state the source of the figures.
Further doubt was cast after it was found that the House of Commons European Scrutiny Committee had made a seemingly different estimate:
“…the Government, however, estimates that over 50 per cent of revenues raised across the EU would derive from activity in the UK”
European Scrutiny Committee, 26 October 2011
A press contact from the City of London Corporation was, however, able to direct us to section 12 of the European Commission’s Impact Assessment on the subject.
In its breakdown of country-specific contributions, it estimated the proportion of revenues emanating from the UK at 62 percent of total EU revenues. Hence, this could act as a credible proxy for determining what proportion of the €57 billion would likely come from the UK.
Both figures that Mr Kavanagh uses to justify his analysis have their own caveats. The €57 billion figure, while backed up by the Commission, is a considerable approximation and should be taken with a similarly considerable pinch of salt, although it does seem to fit in at the more conservative end of the spectrum.
Whether or not the UK accounts for 80 per cent of all financial transactions seems to be an area of some debate however, with different estimates ranging from “over 50 per cent”, to 62 per cent to 80 per cent. This time, Mr Kavanagh’s estimate seems to be at the upper bound.
Nevertheless, taking the €57 billion and 62 percent figures indicated by the Commission’s assessments, at current exchange rates, yields almost exactly £30 billion of revenues coming from the UK. Even with these caveats therefore, the claim seems to hold water.