When Jacques Chirac, the former French president, proposed in 2005 a “Tobin tax” on financial transactions to address the excesses of “liberal globalisation” his ideas were scorned by Britain. Times have changed since then.
Today the man charged with regulating the City of London makes exactly the same suggestion, arguing that such a tax might help to curb excessive pay, profit and activity in a “swollen” financial sector.
Lord Turner, chairman of the Financial Services Authority, is highly regarded in the Treasury, but the idea of imposing new global taxes on a sector struggling out of its deepest hole in the postwar period was not well received.
“This isn’t on the table,” said one government official. “If Adair Turner has views on tax policy, perhaps he should go and work in the Treasury.”
Lord Turner’s comments in the pages of Prospect magazine represent the views of someone who believes the City has simply become too big for society or for the British economy.
He argues that parts of the financial industry have grown “beyond a socially reasonable size” and that London’s competitive position should not be defended at any cost.
To illustrate his point he looks at growth in the share of gross domestic product made up of wholesale financial services and considers “what percentage of highly intelligent people from our best universities went into financial services”.
“Now, unless you’ve got a theory that explains why financial intermediation suddenly needs all this extra resource, there is something of a conundrum,” he says. “Is it really the case that financial intermediation today is a more complex thing than a decade or two back?”
Lord Turner’s suggestion of a Tobin tax to rein in excessive profits may turn out to be about as successful as Mr Chirac’s failed initiative. The FSA chairman admits that a global agreement would be “very difficult to achieve”.
But his stark warning illustrates a wider fear among some regulators that the easing of the financial crisis has bred complacency and that tough measures still need to be implemented.
World leaders will consider the progress made in tightening up banking regulation next month at the Group of 20 summit in Pittsburgh.
Some bankers privately suspect Lord Turner has ulterior motives and that his tough message might be designed to appeal to George Osborne, who hopes to be the Conservative chancellor of the exchequer within nine months.
The Tories refused to be drawn on Lord Turner’s suggestion of a globally negotiated Tobin tax, but Mr Osborne will have been pleased with some of his comments.
Notably Lord Turner is agnostic over Mr Osborne’s plan to scrap the FSA and merge its regulatory functions with the Bank of England. “You can argue this either way,” he says.
He argues that Spain rode out the crisis reasonably well with a bank supervisory system allied to its central bank; Canada’s apparently sound banking system was overseen by a regime that separated central bank and bank supervision.
“You can’t do a split like that without some risks of transition management – and I don’t think George Osborne would deny that,” he says. “But that’s a challenge to be dealt with if the electorate decides to go in that direction.”
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