Financial Transaction Tax 'may add to eurozone's debt woes In a strongly-worded letter, the International Banking Federation (IBF) also said that the "cascade effect" of the proposed levy would hit ordinary citizens and businesses of all sizes and from all sectors. Germany, France and nine other European states are pressing ahead with the new transactions tax, which they hope will discourage speculative trading and bolster debt-laden public finances. Although Britain has opted out of the FTT, George Osborne recently launched legal action against the plan. The Chancellor believes the levy will discourage trades with the City of London. The letter written by the IBF - which represented high street banks such as Barclays and HSBC as well as leading investment banks - warns that the "naive" new charge could be counter-productive, reducing tax receipts and making it harder for Europe's ailing economies to prop up their public finances with borrowing from financial markets. Sally Scutt, managing director of the IBF, wrote in a letter to European finance ministers on Tuesday last week: "We expect financial instruments issued in FTT jurisdictions, including government debt securities, to be quickly and negatively impacted as the tax gets factored into the purchase decision. Governments which already find it difficult to sell their debt will find it even more difficult in the future. She added that the levy would "unfairly marginalise" financial institutions in countries where the FTT was applied and thereby depress other forms of tax revenues. The letter states: "In the end, we believe that the costs of reduced economic activity in the FTT jurisdictions will far outweigh the perceived benefits of the tax revenues that will be collected under the FTT regime." Transactions of shares, currencies and bonds could all be subject to the tax, which would be applied at 0.1pc of these transactions" value. The levy on derivative trades would be set at a lower rate of 0.01pc. The European Union believes the new tax could raise as much as €35bn (£29.4bn) a year. Mr Osborne announced 10 days ago that the Government had taken its opposition to the European Court of Justice. (ECJ) The Luxembourg-based court will take up to two years to consider the UK's case. The Chancellor said at the time: "The British Government [is] not against financial transaction taxes in principle ... but we are concerned about the extra-territorial aspects of the commission's proposal." However, this weekend accountants Ernst & Young argued that the UK challenge did not fundamentally alter the overall FTT landscape. In a research note on the subject, E&Y said that, although there was likely to be some delay to the FTT timetable, the decision would still be made before the UK objection was decided by the ECJ. The E&Y tax team argues that even were the FTT not to be implemented as currently drafted, it is likely that the EU11 states - which include Germany, France, Italy and Spain - would still introduce their own versions of the tax, which would have a knock-on effect to the UK.