'George Osborne has gone to Europe to bat for the bankers, but he's been bowled first ball,' says tax campaigner

Europe's highest court dealt a blow to George Osborne's attempts to defend the interests of the City when it threw out Britain's legal challenge to a tax on financial transactions.

The European court of justice said the UK could not block attempts by 11 countries to use a financial transaction tax because it was not yet in operation.

The Treasury insisted that it would still be possible to challenge the levy if and when it was introduced and that it had been vital to put down a marker before plans for the FTT were finalised.

But the UKIP leader Nigel Farage said the decision showed that the government was impotent to protect the country's biggest industry from outside interference.

"The court dismisses the United Kingdom's action," the ECJ said in a statement. " ... the contested decision does no more than authorise the establishment of enhanced cooperation, but does not contain any substantive element on the FTT itself."

David Hillman, spokesperson for the Robin Hood Tax campaign, which supports an FTT for the UK said: "George Osborne has gone to Europe to bat for the bankers, but he's been bowled first ball.

"This futile legal challenge tells you all you need to know about the government's misguided priorities: it would rather defend a privileged elite in the City than support a tax that could raise billions to tackle poverty and protect public services.

"Instead of trying to stop other countries taxing their financial sectors, our government should follow their lead, stand up to vested interests and harness the City's excessive wealth for the wider benefit of society.

"Complaining that the City will be hit by a European FTT is a clear case of double standards - almost half of the £3bn revenue from our own FTT, the stamp duty on shares, comes from non-UK residents."

Farage said: "This FTT judgement shows that the UK cannot act to protect the UK's biggest interest. It is impotent and at the mercy of an antagonistic federalist court – the ECJ.

"It shows Cameron's argument that the UK government can negotiate a better deal for British business from within the EU as a fraud and a farce. The only way to protect the UK financial interest is to withdraw from the tax-hungry EU and stop giving Brussels power over us."

Osborne has insisted that this bank levy and tougher supervision of the City is the way to respond to the financial crisis of 2008-09. The Treasury lodged a challenge to the FTT when it became clear that a number of EU countries, including Germany and France, were determined to press ahead with the idea, first floated by the US economist James Tobin, to levy a small tax on financial transactions such as foreign exchange and derivatives trades.

A Treasury spokesperson said: "Today's decision confirms the UK will be able to challenge the final proposal for a financial transaction tax if it is not in our national interest and undermines the integrity of the single market. We risked not being able to do that if we had not made this challenge now.

"The government is determined to continue to ensure that the interests of countries outside of the single currency but inside the single market are properly protected as the euro area continues to integrate, including with any proposal for a financial transactions tax."

Unite general secretary Len McCluskey said: "George Osborne is forcing austerity on the British people so his friends in the City don't have to clean up the financial wreckage they caused.

"It's no surprise that the government has confirmed that it will challenge the European court of justice's decision just as the government is opposing the EU cap on bankers' bonuses in the courts.

"It's clear proof that this government will back spivs and speculators at the expense of our schools and hospitals. What should make the people of our country really angry is that this government will use our taxes to support legal challenges on behalf of the very people who wrecked our economy."

Katja Hall, CBI chief policy director, said: "This decision about legal procedure doesn't change the fact that the financial transactions tax will damage growth, jobs and investment across Europe.

"It will have a far-reaching impact on non-participating member states, by including extra-territorial reach into financial services activity conducted in the UK.

"As the UK's largest single trading partner, a healthy European economy is in everyone's interests so we urge that this damaging tax is re-considered."