Row erupts as watchdog calls for tax on the City

Published on Thursday 27 August 2009 22:15

A FRESH row has erupted over "excessive" banking bonuses after Lord Adair Turner, chairman of the City watchdog, claimed Britain's financial sector has grown "beyond a socially reasonable size".

The chairman of the Financial Services Authority (FSA) yesterday came under fire from City grandees after he proposed that more Draconian measures may be needed to slash the "swollen" industry and salaries down to size – including a new tax on global financial transactions.

In an outspoken interview with the political magazine Prospect, he resurrected talk of a "Tobin Tax" to curb huge profits and pay-outs. The tax, named after the economist James Tobin, was pushed by the French government in 2005 to limit the excesses of "liberal globalisation" but was quashed by other countries, including Britain.

His comments caused an uproar in financial centres yesterday, including Edinburgh, with leading figures and organisations warning that Britain would lose yet another major industry to competitors abroad.

John Cridland, deputy director-general of the Confederation of British Industry, said: "The government and regulators should be very wary of undermining the international competitiveness of the UK's financial services industry.

"It provides jobs and tax revenues, and is an area where we have world-class talent."

Stuart Fraser, chairman of the policy and resources committee at the City of London Corporation, said: "Having lost most of our 'traditional' industries to the east, it would be folly to push the one area where we are still dominant in the same direction."

There was particular concern over Lord Turner's suggestion that maintaining a competitive advantage in financial services should no longer be a priority.

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."

Angela Knight, chief executive of the British Bankers' Association, responded: "I think that if we say we do not want to have an international, competitive industry here, then we will do to financial services what we have done to manufacturing and engineering in the past, and that is have it as a minor industry and lose it to others."

Ms Knight said the Tobin tax had never been applied because of the "adverse consequences you get at the other end".

This was echoed by Owen Kelly, chief executive of Scottish Financial Enterprise, the representative body for Scotland's financial institutions,

who said: "Scotland's position as a global financial centre is built on years of history and expertise. We want to build on that and take it forward, not step back from it."

Lord Turner's comments came as a surprise to many financiers, as he had previously been accused of being a soft touch towards the City. Earlier this month, he faced criticism for watering down the FSA's proposals to regulate financial pay.