Now the EC backs a 'Fat' tax on banks

Europe has thrown its weight behind a tax on banking activities that officials say could raise €25bn (£22bn).

The European Commission said yesterday that banks were "under taxed" and should pay more to repair the economies that they damaged during the financial crisis.

The commission outlined its stance as European banking watchdogs prepare to impose tougher-than-expected rules on bankers' bonuses, despite warnings from some officials and industry groups that this could damage the continent's competitiveness against Asia and the US. They are thought to be leaning towards a cap on bonuses based on a multiple of an individual's salary.

The European Commission said it backed plans for a global financial transactions or "Tobin tax", after James Tobin, the economist who came up with the idea. However, it accepted that such a tax needed to be implemented globally to avoid business shifting out of Europe to avoid it.

The commission, however, said a second financial activities, or "Fat", tax should be considered in Europe, targeting pay and profits at financial companies. Algirdas Semeta, commissioner for tax, customs, anti-fraud and audit, said: "There are good reasons for taxing the financial sector, and feasible ways to do so. I believe that the ideas that the commission has put forward today are the right ones to ensure that the financial sector makes a fair contribution."

The commission's ideas, however, could still prove difficult to implement on an EU-wide basis given that taxation in general remains an issue for member states. Britain, along with other EU members such as Germany, is already planning a "banking levy" of its own.

Nonetheless, campaigners welcomed the commission's statement. Max Lawson, a spokesperson for the Robin Hood Tax campaign, said: "The EC has responded to the public mood and has taken a significant step towards a Robin Hood Tax. Taxing big finance makes sense: it can curb dangerous casino capitalism whilst raising tens of billions to pay down our deficit and provide much-needed money for the fight against poverty and climate change here in Europe and around the world. Today's FAT tax proposal could mean as much as £4bn for the UK."

The Association for Financial Markets in Europe (AFME) said the financial sector is a major contributor to tax revenues through corporate and employment taxes on the thousands of people that it employs.

On bonuses, Angela Knight, head of the British Bankers' Association, said: "We need to look across the Atlantic to the US, and east towards Asia, to ensure that changes are imposed sensibly everywhere. If they do not, then the result will be significant difficulties for businesses in Europe."