One of the City's richest and most successful financiers, Michael Spencer, warned yesterday that Icap, the world's biggest interdealer broker, would move overseas if the EU forces through plans for a Tobin tax on financial transactions.
Mr Spencer, the chief executive of Icap, told The Independent on Sunday: "This tax would destroy the City and cost the Exchequer billions, but it would benefit Brussels. Companies like Icap will simply move elsewhere outside the EU if Nicolas Sarkozy and Angela Merkel push ahead with this silly tax."
Mr Spencer's threat is significant. Unlike other companies, Icap has not considered moving off-shore after previous tax increases, such as the higher 50p personal tax. However, an EU Financial Transaction Tax would be so destructive to his business that he said he would have no option.
He is the first of the City's bosses to declare that he would relocate should the EU be successful with its highly political proposals, which failed to go through when they were first proposed last year. "This is another cynical threat by Sarkozy who knows this tax would overwhelmingly hit London as this is where trillions of dollars are traded each day in the foreign exchange, equities, commodities and derivatives markets," he said. "It would also be a huge fillip to New York and other centres like Singapore. It could only work if adopted globally."
Plans for a Tobin-style tax on financial transactions are due to be tabled at an EU meeting in September, following last week's Paris summit between Mr Sarkozy and Mrs Merkel, as part of emergency proposals to reduce market volatility in the eurozone. Analysts estimate a tax across all 27 EU countries could raise up to €200bn (£175bn).
Icap, which is valued at £2.7bn and has 1,800 staff based in London, would be one of the worst hit firms. Each day the electronic broker handles billions of dollars dealing in a range of financial instruments from interest-rate swaps to corporate bonds; its revenues depend on volatility. Other firms, such as Tullett Prebon, the London Stock Exchange, IG and the trading arms of banks such as Barclays, Standard Chartered and HSBC, would also be hurt and some are bound to be considering moving overseas, too.
Mr Spencer, a former Conservative Party treasurer, said: "It would be economic suicide if the UK agreed to this tax. I know that David Cameron and George Osborne will not fall for this as it will destroy the City of London." The Treasury has already voiced its concern over the Franco-German tax plan saying that to work it must be applied globally. But Mr Osborne has yet to say he will block the move.
France and Germany have a fight ahead, as EU tax proposals need unanimous support from member states to become law. Both countries claim the tax is a top priority and an EU spokesman confirmed last week that this time they are determined to force it through to punish market speculators and dampen trading.
However, Sarkozy and Merkel face opposition at home – Deutsche Bank's chief, Josef Ackermann, warned that such a tax would drive business to non-EU countries because of cross-border arbitrage, and that it would hit French and German bank profits.
The Swedish and Dutch governments said they will block the move, but Austria backs the EU. Sweden, the only country to have tried a Tobin tax of 0.5 per cent in the late 1980s, saw an exodus of financial activity to London – by 1990 nearly two-thirds of share-trading volume had moved there. Only a fraction of the tax hoped for was raised and it was scrapped after five years.