Large parts of the City have grown too big and need to be cut down to size, if necessary by imposing new taxes, according to the chairman of the Financial Services Authority.
Lord Turner of Ecchinswell, an influential figure in the reform of banking rules in London and beyond, said that the City had grown “beyond a socially reasonable size”, accounting for too much of national output and sucking in too many of Britain’s brightest graduates.
“I think some of it is socially useless activity,” he said, adding that the financial sector had “swollen beyond its socially useful size” and seemed to make excessively large profits.
Lord Turner named fixed-income securities, trading, derivatives and hedging as areas that have grown beyond socially optimal levels, adding that fund management and share trading might also have grown too big.
Lord Turner added that he would favour City-specific taxes if his proposed new rules on capital failed to shrink investment bank balance sheets and curb the more useless or reckless trading. “If increased capital requirements are insufficient, I am happy to consider tax on financial transactions, Tobin taxes,” he told a discussion organised by Prospect magazine.
nef has been long been proposing that regulators curb the power of the financial sector with taxes, and using the revenue generated to finance more socially beneficial schemes. Back in 2001, when the current recession was just a glint in the speculator’s eye, we wrote a report with War on Want in which we proposed a “Robin Hood Tax” or Tobin Tax to divert funds away from the global currency market into funds for peace and international development.
When the report was released, nef Policy Director Andrew Simms argued that a tax of this kind would be “an automatic and politically painless way to help pay for international targets on sustainable development”. Today, when the voting public are still furious about continued bonuses and profiteering in the City, the tax would not only be politically painless, but politically therapeutic. And there are even more uses for the money raised: it could be used to power a Green New Deal, create an adaptation fund for poor countries who are feeling the effects of climate change, kickstart a Post Office Bank which would help small businesses and financially excluded communities… the list could go on.
We’ve also repeatedly said that the banks need cutting down to what Turner calls a “socially reasonable size”. Our post-crunch reports From the Ashes of the Crash and I.O.U.K. both propose de-merging the biggest banks, and separating speculative trading from the retail, high-street banking that all of us rely on.
Such proposals remain radical, but they’re no longer marginal. In an FT column that begins “The Climate Camp has come to Canary Wharf”, Turner is nicknamed “Swampy” for his ideas, but the article concludes that
Lord Turner has a perfect right to start stirring up discussion about how to shrink a wholesale financial sector that has, he says, “swollen beyond its socially useful size”… Let the debate begin.