The future of the City of London is under threat after the European Union’s highest court threw out a British legal challenge against plans for a financial transaction tax, Boris Johnson has warned.

The Mayor of London attacked the “barmy” EU tax and warned that the latest defeat in the EU courts raised “serious questions” over the government’s ability to defend the City’s financial sector from damaging European regulation.

“This judgement beggars belief. With London’s economy buoyant once more and driving the national recovery, the last thing that we need is a barmy tax that will stamp on growth and potentially drive businesses to financial centres outside the EU,” he said.

“This ruling also raises serious questions about how the UK can safeguard its financial services sector given that we are not in the euro.”

The European Court of Justice in Luxembourg dismissed a “premature” British challenge to an EU decision allowing 11 countries to introduce a financial transactions tax (FTT) under rules allowing “enhanced cooperation”.

Holding the door open for future legal challenges, the EU judges ruled that Britain’s objections to the FTT were based on the detail of European Commission proposals which have not become law yet rather than the decision to allow countries to introduce the tax.

“The court considers that the arguments put forward by the United Kingdom are directed at elements of a potential FTT and not at the authorisation to establish enhanced cooperation, and consequently those arguments must be rejected and the action must be dismissed,” said a statement.

“[The British objections] can therefore not be examined before the introduction of the FTT.”

Mr Johnson said the “the government has been right to oppose this all along” and called on the Treasury to prepare a new legal challenge if the FTT becomes EU law later this year.

David Fuller's view

Needless to say, the UK Government would be mad to accept the European Court of Justice’s (ECJ) decision for a financial transaction tax (FTT).  Moreover, the ECJ is trampling on the EU’s unofficial agreement that no country should be damaged by a ruling that affects its vitally important national interests.  Examples are French agriculture, Germany’s automobile industry, Ireland’s tax policies and obviously London’s global financial centre known as the City. 

Unless the ECJ’s decision is reversed, the UK has just been handed the most important reason for leaving the EU to which it has long been a net financial contributor.  Boris Johnson is certainly correct that the FTT would drive capital and financial expertise away from London.  Additionally the ruling can only affect the UK’s European election on May 22^nd, by increasing the UK Independence Party’s (Ukip) current lead in the polls. 

This is not representation that will reflect favourably on the UK, as you will see from this article from The Guardian: 10 good reasons not to vote for Ukip.