Surface Ripples

The New "City Tax"

Lord Turner has joined the bandwagon of those baying for The City's blood. Essentially, he proposes a tax on City activities.Again, this is part of the post-crisis knee-jerk reaction and will serve little purpose. The article to which I have provided the link above postulates that certain financial activities are useless (questionable),that The City has attracted the brightest talent at the expense of industry (true) and that the City needs to be "cut down to size" (probably). The comments that follow the article suggest that a number of people are "with" Lord Turner in his views and that activites such as fixed income trading, hedge fund management and securities trading add no value.

Where were all these dissenters when times were good? What was the FSA doing at the time? Empty rhetoric like this is no doubt popular, but has anyone really looked at the FSA's role in the failure to contain the financial crisis that started in the US and spread like a contagion throughout the rest of the world? If we were to discourage the better traders from working in the UK, they would simply take their talents elsewhere with the resultant loss of income and skills (and growth) to the UK economy. Equally, is the FSA's role to set tax policy, or does this belong to the Treasury?

Another fact that seems to have escaped the worthy peer is that banks pay "indirect taxes" in the form of sports sponsorships, charity donations and community initiatives. Tax them more, and perhaps the "Natwest Trophy" or the "Barclays Premier League" to name but two will suddenly disappear with the resultant impact on UK sport. Additionally, if not allowed to keep profits, where will banks find the cash to invest in the increasingly expensive and complex systems required by today's financial markets to ensure that economies run smoothly?

Lord Turner should look more to see what the FSA should be doing in terms of regulating activity (i.e. its job) effectively rather than handing over skills and revenues to other countries in a misguided attempt to be seen to be "doing something".

Labels: Regulation

posted by William Martin @ 15:43