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Comment: Sorry, Lord Turner, but you’re way out of step
Angela Knight, chief executive of the British Bankers’ Association28 Aug 2009
Lord Turner has been doing some big thinking about the future of the City, and his views will not be popular to many who read them in London.
Speaking to Prospect magazine, the Financial Services Authority's chairman states that London's financial district is too big and that some of its activity is “socially useless”. Plus he threatens that if his recently issued Code of Conduct on pay does not work, then a new transaction tax should be levied on the City's activities.
Lord Turner makes the case that the City has been allowed to grow too big, and that the Exchequer's reliance on such a massive contributor to the country's economy has had a destabilising effect. But should we therefore add it to the list of those world-class industries we toiled to build and then lost to other centres abroad?
I would agree that thought should be given to diversifying the UK economy and diminishing its reliance on financial services. Certainly, we should be supporting manufacturing and entrepreneurship to build strong businesses for the next generation.
London has been the engine room of the UK economy for many years now. If it were to become public policy to try to shrink its financial sector, it would happen very quickly: any number of other countries are lining up to get a piece of the action. But it is unclear what would happen to the hundreds of thousands of jobs in our capital supported directly or indirectly by this industry.
Perhaps it would be easier to kill off all of that revenue and jobs if, as Lord Turner says, much of it was “socially useless”.
In an industry the size of the City, some activity may be going on that we could do without. But recessions tend to be the harshest critics of such activity, and root it out quickly. All of the businesses criticised by Lord Turner appear from another perspective to be contributing to the efficient allocation of capital. And, as he says, it is hard to distinguish between valuable and non-valuable financial innovation.
But his proposal of a new tax on financial transactions — over and above the current stamp duty — is most controversial. It confuses two issues: the perceived inequity of bonuses and the need to curb the excesses of globalisation.
On bonuses, all UK banks have committed to complying with the FSA's new code of conduct, and consulting the regulator on future remuneration strategies. If banks do not satisfy the FSA, their capital requirements will be hiked. But if that fails, Lord Turner says a new transaction tax might do the trick.
A Tobin tax is a utopian, impractical proposition that has been discussed by economists for more than 30 years but which has never come close to being implemented anywhere. James Tobin believed a tiny surcharge should be placed on all foreign currency transactions across the world, and the funds used to redress some of the imbalances of globalisation. By contrast, Lord Turner's proposal would be punitive and damaging — a further transaction tax on the London markets that would simply drive business abroad. On this, as with almost all other matters of financial regulation, the UK cannot act alone.
Angela Knight is chief executive of the British Bankers' Association
Reader views (5)
Lord Turner is of course an enigma in many ways, but that is almost by the way. The political revenge brigade seem to forget just how many schools, hospitals and roads were paid for through the financial services sector’s enormous contribution to taxation for many years. If the social engineers in the system are to endaevour to shrink the financial sector the first to suffer will be huge numbers of back office people in the UK’s other financial clusters including Edinburgh, Glasgow, Leeds, Manchester, Birmingham, Norwich and Bristol. What is becoming clear is that our political leaders are weak and reaching ever greater weakness as we approach a general election. I abhor the political theory, apparently held by this government, and maybe the opposition parties, that democracy can be adequately served through wilful deceit when addressing important matters. People with an ounce of intelligence will recognise that much of the criticism of the City is obfuscation. The intent is to conceal the shortcomings on our professional politicians’ own lack of talent and, dare I suggest it, honesty.
- John Davie, Redbourn, Herts, 01/09/2009 00:06
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Lord Turnrer's proposals would diminish the tax take generated by the City and UK's Financial Services Industry, estimated @ £27bn in 2007 excluding National Insurance Contributions of £3.2bn in 2007. What does he propose to replace it with? Socialist dogma, rhetoric and hot air?
Richard Dickson
Perthshire
- Richard Dickson, Bridge of Cally, Perthshire, 28/08/2009 16:22
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It is for the Treasury to make tax policy, not the FSA. The FSA is the regulator that allowed Northern Rock, RBS and HBOS to happen. Lord Turner lets get the regulation right first, before going into areas that not even your responsibility? If there was a UK transaction tax it would seriously hurt the City and business would go abroad.
- Andrew, London, 28/08/2009 14:51
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Well done Mr Butler for indulging in another anti-government rant whilst missing the point entirely. I despise much that this government has done, probably more than you, but the article was about Lord Turner's sentiments on the banking industry.
Whatever Brown faults and those of the rest of the government, it is nothing to the damage done to Britain by the rapacious snake oil salesman who constitute the investment banking industry in the UK. Our grandchildren's children are quite likely still to be paying for the egregious mistakes of those charlatans.
Yet anti-Brown ranters like you - who seem never to waste an opportunity to vent their spleen (eg its raining today thus "must be down to Nuliebor") - are so wrapped in warped priorties that they have allowed the chancers in the City and Canary Wharf to get away with it. After all they have effectively purloined YOUR taxes to pay THEIR bonuses!
Many people, from Vince Cable, leading contributors in the Financial Times, to the Ernst & Young Item club econonic consultancy* have worried about the effect that such a bloated industry has on the rest of the UK. Also that it poses too big a risk for the UK to sustain.
*(who charactarized the City as a gigantic cuckoo that survives by heaving every other industry out of the economic nest)
The problem is that Ms Knight offers no solutions and her defence of bankers even during the debacle last year gives her the credibility of a PR person for a drugs cartel
- William, London, 28/08/2009 13:39
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The most swollen, bloated and socially useless part of the UK economy is the Government.
Fortunately, there is less than a year before these slimy people crawl back under the northern rocks from which they came, never to be heard of again.
The whole south east of England will celebrate when this finally happens.
- W Butler, London, 28/08/2009 12:13
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