August 30, 2009 7:14 pm

Turner stands firm after Tobin tax backlash

Lord Turner made a robust defence on Sunday of his controversial idea for a global tax to curb the “swollen” financial sector.

The chairman of the Financial Services Authority drew a City backlash last week against his proposals, made during a round-table debate reported by Prospect magazine.

Lord Turner had argued that if banks’ behaviour could not be curbed by higher capital requirements, governments could consider taxes on financial transactions – sometimes referred to as a Tobin tax.

The suggestion, from such a senior and highly regarded figure, prompted an alarmed riposte from banks and other financial services groups who said such a tax could damage the City.

On Sunday, Lord Turner said it was “ridiculous” to suggest he wanted to impose the tax unilaterally in London without it being levied in the rest of the world. “Nobody who read the original article would ever have suggested that.”

He also pointed out that it would not have been within the FSA’s remit to carry out such a policy. “I don’t regret any of the things I said in the Prospect article,” he told Sky News. “I did not propose specifically introducing a tax and it’s certainly not the role of the FSA to introduce a tax.”

The FSA has been criticised for issuing bonus guidance to banks this month that fell short of politicians’ recent promise of a crackdown on inappropriate rewards.

Lord Turner said it had never really been in the powers of the City watchdog to stop bankers being paid so much.

“My message was . . . stop telling the FSA to go beyond its remit and to start imposing limitations on the level of bonuses, which it is neither within our legal power or our practical ability to do,” he said.

It was one thing to influence remuneration structures at companies or to encourage them not to take excessive risk, Lord Turner argued. But staff could still earn “large amounts of money” even from doing low-risk activities.

Ministers have let it be known that they could come back with legislation later in the year to curb excessive bonuses.

Nicolas Sarkozy, the French president, has called for next month’s G20 meeting to consider a global tax and a cap on bank bonuses. Angela Merkel, the German chancellor, also backs limits on excessive pay in the sector.

Lord Turner will make a speech on such issues at Mansion House just two days before the international summit.

The FSA is also the subject of a political tug-of-war, with the Tories promising to fold most of its activities into the Bank of England should they win the next general election.

Lord Turner said this would not necessarily spell the end of the organisation.

“The Tories are not going to get rid of the FSA in terms of the people who are there and the jobs they’re doing,” he said. “The core functions of what the FSA is doing will still exist.”

Meanwhile, Boris Johnson, the London mayor, will hold talks on Wednesday with Charlie McCreevy, head of internal markets for the European Commission. Mr Johnson will argue that the draft directive on alternative investment funds could damage London’s financial services industry.

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