Better too much banking than none at all
If the Financial Services Authority is to disappear after the general election, then chairman Lord Turner seems determined to destroy the financial services industry first. Not only does he propose taxing it into oblivion, he thinks Britain would benefit from being less dependent on the sector.
The UK’s chief regulator suggests a global tax on financial transactions and argues that City competitiveness should not be an aim because the Square Mile is a destabilising factor in the economy.
His job was never to promote financial services, of course, simply to keep the game clean. But while his levy – the latest variant on the never-tested Tobin tax – is aimed at suppressing banks’ profits to stop them paying high bonuses, it would thus also damage the banks’ values.
And while governments would presumably receive the tax (though past Tobin advocates suggested using it to fund international aid) the UK government is the biggest investor in bank shares. If the Treasury hopes to sell its stakes in Royal Bank of Scotland, Lloyds, Northern Rock and Bradford & Bingley at a profit it does not want their earnings depressed by a tax on revenue.
As to reducing the finance sector’s importance to Britain’s economy, it is a brave person who deliberately curtails one industry without ensuring an alternative is ready to take its place. Finance is too large a part of the UK’s gross domestic product and the impact of a crash is thus too high, but it is better than nothing and there is no evidence that its presence is preventing other industries developing.
Having lost most of our manufacturing industry we should be wary of deliberately shrinking one of our strengths.
Turner may have been caught by an interviewer in free-thinking mode but he is not a spent force, despite the Conservative party’s threat to merge his regulatory body into the Bank of England. It will probably take two years to close the FSA and Turner is not only its head for now, he is chairman of the key regulatory and supervisory committees of the G20’s new Financial Stability Board and has set a deadline of this year for global measures to curb bankers’ excesses.
We may not get a Tobin tax, but if this is a test of his thinking, something tough is on the agenda.
