Crazy or astute? Reaction to Lord Turner's call yesterday for a tax on banking transactions almost instantly polarised opinion. The Financial Services Authority chairman's call for a so-called Tobin Tax certainly came out of the blue and it dramatically raised the stakes in the debate about bank bonuses, the role of modern-day investment banking and the future of regulation, globally that is, not just in the UK.Lord Turner is no mug. He is not given to make off the cuff remarks (certainly not in interviews with influential political magazines such as
Prospect) and he is not naive when it comes to the ways of his political masters. So, those who have reacted, like Boris Johnson, with the "he must be bonkers" line are a long way wide of the mark. This is a carefully considered attempt to shift the focus of the debate about the future of regulation and to test whether there really is any political will to tackle the way the banking sector operates and remunerates itself.
The FSA has come under fire from all sides for not doing enough in the run-up to the financial crises of the last two years and, more recently, Lord Turner attracted criticism for being too weak in his proposals for toughening up regulation of the banking sector. There is only so much that any regulator can do, however, without the wholehearted backing of government and that is the real message behind his Tobin Tax proposal. He has put the ball right back in the centre of the politician's court and they don't like the look of it one bit. The government has been struck into dumb silence (a widespread summer curse in Downing Street it seems) at the shock of this ball being lobbed over their fence. The Tories took one look at it yesterday and booted it as far away as they could, not even stopping to think where it might land and the consequences for their policies. The Liberal Democrats looked at it abit more cautiously and kicked it around but generally didn't like the look of it. To sum up the political reaction in the UK it seems to be: "What? You expect us to do something about the banks? Not likely".
Beyond these political circles, Lord Turner's comments seem to be playing out well. His observation that parts of the financial sector have "grown beyond a socially reasonable size" chime well with the public perception of the sector and, although the details of how the proposed taxes would operate might not interest them, the principle certainly looks right.
In Europe they promise to be very influential over the next few weeks. With the French and Germans already keen on finding ways of bringing the banking sector to heel, especially the Anglo-American institutions they blame for causing the credit crunch, Lord Turner's remarks will be like music to their ears and will be thrown back at Gordon Brown and Alistair Darling at the
series of summits taking place next month.
