Clash looms over City tax proposal

European Commission president Jose Manuel Barroso said a financial transaction tax (FTT) for all 27 EU countries could raise 55 billion euros (£47bn) 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 per cent.

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, 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 to become law.