Lord Turner considers taxing the banks
Updated on 27 August 2009
The head of the Financial Services Authority, Lord Adair Turner, says he would back special taxes on the banking industry to curb bonuses and excessive pay.
Lord Turner told Prospect magazine that the financial sector had grown beyond a reasonable size and, he said, that promoting London as a global finance centre was not his organisation's major aim.
His remarks have angered banking leaders who say such talk could put British competitiveness at risk.
Lord Turner said he would consider Tobin taxes (named after economist James Tobin who first proposed them in the 1970s) which are small charges added to foreign exchange transactions to discourage speculative trading.
He said: "If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit.
"Higher capital requirements against trading activities will be our most powerful tool to eliminate excessive activity and profits.
"And if increased capital requirements are insufficient I am happy to consider taxes on financial transactions - Tobin taxes."
Taxes inevitably weaken business demand in the country they are applied to but Lord Turner hinted he must take unpopular decisions to secure the long-term health of the financial industry in London.
He added: "It's clear to me that the FSA has to be very, very wary of seeing the competitiveness of London as a major aim, and that's not a popular thing to say."
But Angela Knight, chief executive of the British Bankers' Association told Channel 4 News she would be opposed to the taxes.
She said: "The Tobin tax has been around for 30 years and the reason it has never been implemented is because you either get business shifting aruond the world because all governments don't implement it, or the thing you are trying to tax ceases to exist and something else springs up in its place.
"You can allow business to move out of the UK, after all we have built world-class industries in the past and we have lost them. That is why when you go out into the streets to buy goods you find so much of it is manufactured outside the UK.
"So if you have got a world-class industry we do have to regulate it right and we do have to sort out excesses where they have taken place. But if we say we do not want it any more, we lose jobs, we lose tax, we actually lose the benfits of a very strong sector of our economy.
"What does work is proper regulation including proper renumeration structures. Not only have we made changes already in the UK, which no other country has yet made, but we have also put them into the financial regulatory framework with proper long-term requirements on them and an enforcement mechanism on the back.
"That is important because you have to do these things properly whether it's renumeration, training, regulation or whatever.
"I think we have to be very careful to get our industry operating correctly.
"Within the international context, other countries follow suit. That is the way to retain the benefits and that is better for the UK economy than losing them."
