Comment: Adair Turner wields the tax axe - again
If anyone in authority was ever going to float the idea of using the tax weapon to help curb excessive profits in the financial services sector, Lord Adair Turner, chairman of the Financial Services Authority was always going to be the man.
Back in the days when he was UK pensions czar, he made it clear that poverty in old age was only going to be sorted out by a mix of higher taxes, a later retirement age and higher semi-enforced savings.
To achieve semi-enforced savings, Turner fostered the creation of personal accounts which made it easier for people to access savings accounts through a state-sponsored body, which made the best possible use of tax relief.
In later years, when in charge of a state-sponsored UK climate change initiative, Turner said the best way to curb the emission of carbon dioxide was through a mixture of carbon trading systems, direct regulation and (you guessed it) tax.
Turner has made it crystal clear that over-large banks paying excessive salaries to people trading complex products worth billions pose a threat to society. Following writedowns in the credit crisis, state rescues created an intense financial problem. If another financial crisis erupts, this year or next, the impact on the global economy would be catastrophic.
In a discussion forum hosted by Prospect magazine, Turner agreed the banks had ceased to be "socially optimal" in areas such as fixed income, trading, derivatives and hedging. Turner said of bank taxes: "Such taxes have long been the dream of the development economists and those who care about climate change - a nice sensible revenue source for funding global public goods."
However, Turner stressed that fiscal policy should only be part of a package designed to bring banks to heel. He cited the far greater importance of raising capital requirements to restrain the banks at certain points in the cycle alongside tax and interest rate policy.
He added that certain types of products might require particularly high capital hurdles, pointing out the worst excesses of the securitisation and credit default swaps market needed to be curbed: "We need a stable and sensible form of securitisation rather than the monster of the past five years." Interest rates will also have a role to play.
Turner deserves credit for recognising there will always need to be multi-pronged solutions, including tax changes, to every multi-pronged problem. Whether his balanced approach will persuade the Tory party to think twice about putting the Bank of England, rather than the FSA-led tripartite arrangement, in charge of UK bank regulation, is quite another matter.
One Tory source said today: "The international priority remains dealing with the banking crisis, not devising new international taxes. But we welcome the fact that Lord Turner agrees with our call for central banks to be more involved."
To read the full Adair Turner roundtable in Prospect magazine, visit www.prospect-magazine.co.uk
--write to mfoster@efinancialmews.com
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