Top UK Regulator Supports Transactions Tax to Shrink Financial Sector

A year ago, it occurred to me that if the popular blood lust against the financial sector was to be given vent, one could do worse than adopt a small (but global) tax on financial transactions.    The Financial Times on August 27 reported that Adair Turner, head of the UK Financial Services Authority, has come out in support of just such an idea.   The FT itself editorializes against the proposal, pointing out the importance of the financial services sector to Britain, and arguing that ”bonus-bashing is a distraction.”

It is worth recalling that the more of the original goals of the bailout packages of a year ago have been attained than many commentators expected.    The goal of preventing a depression in the general economy has apparently been accomplished — and without nationalization of the large banks.    The Administration and the Fed always said that helping some undeserving financiers would be an undesirable but necessary side effect of the rescue plan   You don’t punish someone who has been smoking in bed by allowing the resultant fire to burn down the block. The goal of recouping a substantial share of the bailout costs has also begun to be realized – contrary to many cynical predictions – as banks repay loans to the Treasury and to the Federal Reserve, often at a profit to the taxpayer.

Nevertheless, it is indeed irksome that the banks have continued to pay out huge bonuses to their top employees, and to oppose the creation of a new US agency for financial consumer protection.   So the public’s anger is understandable.   Perhaps the transactions tax is indeed the right way to go.  Our Treasury and others’ could really use the revenue, especially if they don’t recover full value on the money that has been put into rescuing financial institutions.  Furthermore, the idea of shrinking the volume of transactions in financial markets nowadays looks much less likely to damage economic efficiency than we once believed.   

Originally published at Jeff Frankel’s Weblog and reproduced here with the author’s permission.

One Response to “Top UK Regulator Supports Transactions Tax to Shrink Financial Sector”

home based workoutJune 12th, 2011 at 11:23 am

You actually make it seem so easy with your presentation but I find this topic to be really something that I think I would never understand. It seems too complicated and very broad for me. I’m looking forward for your next post, I will try to get the hang of it!

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Richard Wood Richard Wood

Richard has published papers on wages policy, the taxation of financial arrangements and macroeconomic issues in Pacific island countries. Views expressed in these articles are his own and may not be shared by his employing agency. He is the author of How to Solve the European Economic Crisis: Challenging orthodoxy and creating new policy paradigms