The head of the UK’s main financial regulator has come out in support of a new tax on banks designed to prevent excessive bonuses in the City.
Lord Turner, the chairman of the Financial Services Authority (FSA), described much of the City’s activities as “socially useless” and said that the financial sector had become “swollen”.
In an interview with Prospect magazine, he suggested that a tax on financial transactions could limit the money available for bonuses and added that it would be “a nice sensible revenue source for funding global public goods”.
He told Prospect: “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.”
He emphasised that such taxation would not alone restrict excessive pay and that more direct intervention by the government was needed.
The idea of a tax on financial transactions was pioneered by the American economist James Tobin but struggled to win a hearing during the neoliberal ascendancy of the 1980s.
Turner’s remarks won support last night from the prominent Labour backbencher Frank Field who said the response of the authorities had been weak in the face “of the damage done by the people paid massive bonuses”.
He added: “It looks like like Adair Turner has fired the starting gun on thinking more seriously about the City and what it is for and what kind of pay people should expect.”
But a spokesman for the British Bankers’ Association, Brian Capon, warned that new taxes could diminish the City’s place as a global financial centre.
“If we introduce the wrong kind of regulation or the wrong kind of taxes we could so easily lose that position by driving business abroad,” he said.
One of the main challenges of introducing a Tobin tax would be reaching international agreement and several countries are likely to act aggressively to protect their financial status.
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