The UK has lodged a legal challenge at the European Court of Justice against plans by the European Commission to introduce a financial transaction tax (FTT) in Europe.

Although the FTT has only been agreed by11 European Union members, including Germany, France, Italy and Spain, it will mean that any trade in euro-denominated financial instruments and any transaction with a bank from the 11-nation group, or one of its overseas branches, would be subject to the tax, regardless of where the deal took place. It is expected to raise as much as €35bn (£30bn) a year.

Speaking in Washington while attending the International Monetary Fund's spring meetings, the Chancellor George Osborne said: 'The British Government is not against financial transaction taxes in principle - we have stamp duty on shares - but we are concerned about the extra-territorial aspects of the Commission's proposal. That concern is shared by some other countries.'

Recent analysis by the City of London suggests that the FTT could add almost £4bn to the cost of issuing UK government debt this year.