The UK looked to be on a collision course with European leaders today over controversial proposals for a tax on City trading.
European Commission president Jose Manuel Barroso said a financial transaction tax (FTT) for all 27 EU countries could raise €55 billion (£47 billion) a year and would ensure the sector made "a fair contribution" in an austere economic climate.
However, the Treasury said it would only back a financial transaction tax which was applied globally, while UK business leaders said introducing such a levy now would be "misguided".
Traders ditched banking shares following President Barroso's speech, with Royal Bank of Scotland and Lloyds Banking Group off more than 2%.
However, the British Government is facing a fight on its own shores as unions and campaign groups backed the so-called Tobin tax, which could support causes such as climate change and global poverty.
Algirdas Semeta, EC commissioner for taxation, customs, anti-fraud and audit, said: "Our project is sound and workable. I have no doubt this tax can deliver what EU citizens expect - a fair contribution from the financial sector."
Germany and France have pressed the EC to propose the tax on all financial investment systems in a bid to show taxpayers they are committed to recouping some of the costs of the banking crisis.
EU taxation proposals require unanimous support from the region's 27 national governments to become law.
A spokesman for the UK Treasury said it will engage with its international partners on FTT proposals and has no objection to them in principle.
He went on: "But any financial transaction tax would have to apply globally and there are a number of practical issues that need to be worked through."
The Treasury has already moved to repair some of the damage caused during the financial crisis after it unveiled plans for a new bank levy which should raise £2.6 billion a year by the end of 2012.
Chancellor George Osborne earlier this month warned that a specific EU-wide financial transaction tax could drive investment out of Europe and threaten the interests of the City of London.
Speaking on the sidelines of a recent G7 summit, the Chancellor said: "I am against an EU tax. There would be no point introducing a financial transaction tax that led, the next day, to our foreign exchange markets moving to New York or Singapore or anywhere else."
Dr Neil Bentley, CBI deputy director-general, said pressing ahead with a financial transaction tax was "completely misguided at a time when it's clear that Europe needs a relentless focus on growth".
He said: "The FTT is a crude instrument that would increase the cost of capital for businesses, hold back their growth potential and raise minimal revenue in return. It would be particularly damaging to the UK, as Europe's leading financial centre, as it would divert activity to other financial hubs like New York or Hong Kong."
However, TUC general secretary Brendan Barber urged the Government to support the proposals and said: "An FTT would provide much needed revenue for tackling climate change, global poverty and cutting public sector deficits."
David Hillman, spokesperson for the anti-poverty Robin Hood Tax campaign, said Prime Minister David Cameron needs to put himself on the side of public opinion by supporting the proposals.
He said: "While the UK Government defends the interests of the City's privileged few, this shows Europe is ready to ensure banks pay their dues to society."
Labour MEP Arlene McCarthy said the UK Government should listen to growing calls for the introduction of the financial transactions tax.
"The British Government should give these proposals proper consideration and not dismiss them out of hand just to please City suits," she said.
The UK Government rejected similar proposals raised by its French and German counterparts in September 2010.
A tax on financial transactions was introduced in Sweden in the 1990s after a financial crisis but was dropped when trading volumes moved abroad.
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