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Traders Fear Labour’s $11 Billion Tax Will Crush London Market

Viren Vaghela and Silla Brush

(Bloomberg) -- Traders in London say the Labour Party’s proposal to introduce a broad financial transaction tax risks paralyzing trading activity in the city.

The opposition party led by Jeremy Corbyn announced a plan Thursday to raise as much as 8.8 billion pounds ($11.4 billion) a year from levies on trades such as derivatives or large volumes of currency, where London currently dominates the market.

“Doing this will drive up costs and won’t raise taxes, as people will find other ways to trade,” said Alasdair Haynes, chief executive officer of Aquis Exchange Plc, a European stock trading venue. “It shows they don’t understand the repercussions and the disaster it will create. It’s extremely dangerous.”

Other market participants struck an even more apocalyptic tone.

“This misguided proposal could signal the death knell for the United Kingdom’s shining light as the leading global financial hub,” said David Mercer, who runs LMAX Exchange Group, which specializes in foreign exchange. “Global institutions will vote with their feet and the City of London will become a ghost town.”

Election Promise

Labour is not alone in considering a financial transaction tax. European Union lawmakers are mulling a levy on share trades, and U.S. Senator Bernie Sanders has said a tax on various transactions could fund college education.

Britain already imposes a tax on stock transactions, set at 0.5% on purchases of U.K.-issued shares. This generated more than 3.5 billion pounds in 2017-18, according to a report by Intelligence Capital for the Progressive Economy Forum, a left-wing think tank.

Should it win power after the Dec. 12 U.K. election, Labour would extend that levy. However, discounts would be offered to financial firms, while currency trades under 1,000 pounds and short-term interest rate swaps would be exempt. The party, which is trailing the Conservatives in opinion polls, said the tax would help minimize short-term trading.

Financial services generated 75 billion pounds in British tax in 2017-18, amounting to more than 10% of U.K. tax receipts, according to the City of London Corporation, which administers the financial district. While the body doesn’t comment during a pre-election period, its policy chief, Catherine McGuinness, warned earlier this year that a financial transaction tax could drive business away.

Miles Celic, chief executive officer of TheCityUK, a financial lobby group, said the tax would hurt London’s ability to compete globally.

“Financial centers across the world consistently go to great lengths to attract financial and professional services business, and the jobs it supports, away from the U.K.,” Celic said in an e-mail. “Our lead will not last long if we start booting balls into our own net.”

Impact on Savers

The Investment Association, whose members include major asset managers such as BlackRock Inc., said that instead of hitting financial institutions, the proposals will be a tax on savers.

“It is potentially harmful for the prospects of long-term savings and investment in the U.K.,” the association said in a statement.

The Personal Investment Management & Financial Advice Association also said that consumers would ultimately bear the cost. While “we understand the logic behind these proposals, we believe that they are ultimately based on an outmoded caricature of those who operate in financial services,” the trade body said.

Mercer, at LMAX, said it would become impossible for companies like his to compete globally. “I would not hesitate to move our headquarters to another jurisdiction. We will not be alone,” he said.

(Adds CityUK comment in 10th paragraph)

To contact the reporters on this story: Viren Vaghela in London at vvaghela1@bloomberg.net;Silla Brush in London at sbrush@bloomberg.net

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Keith Campbell

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