‘Wrong time for banking tax that will cut growth’ insists Knight

A EUROPE-WIDE “Tobin tax” on banking transactions would harm GDP and jobs at exactly the time when policymakers should be focusing on growth, warned Angela Knight, chief executive of the British Bankers’ Association (BBA), in Edinburgh yesterday.

She admitted the proposal would be popular with citizens angered by excessive banker pay in the wake of the financial crisis, but pointed out that the European Commission itself has estimated that the tax on banking transactions could depress GDP across the EU by as much as 1.8 per cent and could see derivatives transactions cut by as much as 90 per cent, which would affect jobs and growth in the UK.

Speaking to delegates at a conference hosted by the Institute of Chartered Accountants of Scotland (Icas), Knight said the rate proposed would see 0.1 per cent charged on the purchase price of transactions and 0.01 per cent charged on derivatives, which the commission estimates would raise between €16 billion (£13.7bn) and €43bn a year.

“All this not only sounds pretty painless but also it is levied on the ‘bogie man’ of financial markets and links straight through to the hated banks and is portrayed as a fair way of getting the industry to pay more in tax. So it is a number of important buttons,” said Knight.

“It is quite extraordinary and let alone at this time, that a proposal should be brought forward that will reduce GDP rather than increase it. It will take out trading and jobs from our region rather than increasing them and will flow through to everything from a unit trust that an individual might hold to their pension fund.

“As sadly is the case with a number of other post-crisis measures the careful analysis, the logic and the rational debate are not sufficiently present.”

In a wide-ranging address she said the low number of women on the board of financial institutions had contributed to “group think” which probably worsened the financial crisis but said this extended well beyond the heads of banks.

“There was ‘group think’ among regulators, among central bankers and by governments as well,” said Knight.

Last week it emerged that European regulators might bar “big four” auditors from taking on lucrative additional work for major international firms they audit, while also facing a mandatory audit firm rotation.

Atholl Duncan, spokesman for Icas, said: “Some of these measures from Europe are reactive and the debate from here on in has to be about what is the long-term vision for the profession, for audit, and most importantly how do you ensure the quality of the audit in the future and ensure the independence of the auditor? “But the status quo is not an option.

“Everyone would agree we need to rebuild trust in business and in auditors in the wake of the financial crisis,” he said.