Tax backed to combat City bonuses

Aug 27 2009

The head of the UK's City watchdog has backed a tax on financial transactions to combat excessive bonuses, it has emerged.

Lord Turner, chairman of the Financial Services Authority, described the financial sector as swollen and said he was happy to consider such taxes.

He told Prospect magazine: "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."

A Tobin tax is a small tax on foreign exchange transactions, originally proposed by the economist James Tobin in the 1970s to discourage speculative trading.

Lord Turner criticised some of the City's activity as being "socially useless," and said it had "swollen beyond its socially useful size".

Pre-empting objections from those who fear tighter regulation of the City could drive people away, he said: "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."

He suggested that the level of pay in the financial services may be caused by "oversimplistic financial deregulation", describing this as the "really fundamental question".

"This is not a question that any of the politicians have focused on but I think it's an important and legitimate issue of public concern," he said.