By Alanna Petroff and Mark Thompson @CNNMoneyApril 22, 2013: 8:56 AM ET
Resistance to European plans to start taxing financial transactions is growing.
The U.K. has challenged the proposal at the European Court of Justice, the EU's highest court, just days after the world's leading financial centers wrote to G20 finance ministers urging them to oppose the tax or risk damaging feeble economic growth.
The U.K. government said it wasn't opposed in principle to a global tax on trading but believed the EU proposal would hurt jobs and growth and hit savings and pensions.
"While we will not participate in a Europe-only tax, we have also said we will not stand in the way of other countries, but only if the rights of countries not taking part are respected," said a U.K. Treasury spokesperson, adding that the proposal did not meet those requirements.
Many European governments are desperate to identify new sources of revenue to plug holes in their budgets, made larger by the recession, without placing further burden on individuals. They also face popular pressure to ensure the banking industry pays a bigger share of the cost of dealing with the economic fallout of the financial crisis.
Such levies are often dubbed "Tobin taxes" after Nobel Prize winning economist James Tobin, who proposed taxing foreign exchange transactions in the 1970s to curb speculation.
Even though the U.K. won't participate, opponents argue the tax will push up the cost of trading because it will be levied on transactions with EU banks operating in London, and the higher costs will be passed on to companies and individuals.
Financial industry lobbyists are fighting back. In the joint letter to the G20 meeting last week, associations representing New York, London, Hong Kong and other major markets said the proposed tax would hurt the world economy at a time of significant uncertainty.
Eleven EU countries agreed to enact the tax to raise billions of euros from the financial services industry and deter speculation. It's the first time the EU has introduced a new tax without the support of all members.
The Association for Financial Markets in Europe, one of the signatories to the G20 letter, welcomed the U.K. decision to mount a legal challenge.
"All the evidence shows that the tax will have serious harmful economic effects," the association's chief executive, Simon Lewis, said in a statement.
Major tax haven users exposed
The countries planning to introduce the tax include the eurozone's top four economies -- Germany, France, Italy and Spain. They decided to press ahead after attempts to get EU-wide agreement failed.
While the tax is only set at 0.1% of financial transactions and 0.01% of derivatives, analysts say it could have big economic consequences that will reverberate around the world. If levied on each party to a transaction, the costs could spiral out of control.
The tax will apply to all transactions where the buyer or seller resides in one of the 11 nations, and also if a security is issued in one of participating countries.