The head of Britain’s top banking watchdog supports the idea of new global taxes on financial transactions, warning that a “swollen” financial sector paying excessive salaries has grown too big for society.
Adair Turner, chairman of the Financial Services Authority, says the debate on bankers’ bonuses has become a “populist diversion” and that more drastic measures may be needed to cut the financial sector down to size.
He also says the FSA should “be very, very wary of seeing the competitiveness of London as a major aim”, claiming the city’s financial sector has become a destabilising factor in the British economy.
His comments, floated in an interview in Prospect magazine published on Thursday, may be read in other financial centres, including New York, as a sign that Britain is becoming increasingly sceptical about the perceived advantages of being a leading financial centre.
Lord Turner’s suggestion that a “Tobin tax” – named after the economist James Tobin – should be considered for financial transactions is also likely to reverberate around the world. The proposed tax, which has previously been championed by development economists and the French government as a means of funding the developing world, has been fiercely opposed by the finance industry.
Lord Turner appears worried about a return to “business as usual” in the banking sector, suggesting that new taxes may be necessary to curb excessive profits and pay in the financial sector.
“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,” he says.
Lord Turner says higher capital requirements will be the FSA’s main tool to eliminate excessive activity and profit, but that a tax on transactions on a global level may be an additional option.
Aides to Alistair Darling, chancellor, said no such taxes were under consideration. Mr Darling insists that the banking industry in London should continue to play a leading role in global finance.
Angela Knight, chief executive of the British Bankers’ Association, also defended the financial industry’s role in the economy saying the sector was a main provider of jobs and tax revenues and could be undermined by the wrong kind of taxes or regulation.
The FSA chairman also claims that parts of the financial services sector had grown “beyond a socially reasonable size”, including derivatives and hedging and aspects of the asset management industry and equity trading.