Page last updated at 13:12 GMT, Thursday, 27 August 2009 14:12 UK

Bank tax unworkable, says Clegg

Nick Clegg
Mr Clegg said there were more effective ways of curbing bonuses

Lib Dem leader Nick Clegg has queried the "workability" of a suggested tax on banks to curb excessive bonuses.

Lord Turner, head of the UK's finance watchdog, has suggested taxing banks' financial transactions.

The Treasury has urged restraint on bonuses but stressed taxation was a matter for the chancellor.

Mr Clegg said the idea had practical pitfalls but agreed with Lord Turner's "sentiments" and said that some banks needed to be broken up.

In an interview with Prospect magazine Financial Services Authority chairman Lord Turner said parts of the financial system had "grown beyond a socially reasonable size".

We over-relied on the City of London for too long and it became too big, too unstable
Nick Clegg

The Treasury has not directly commented on his remarks about a tax on banks but officials have made it clear that policy is a matter for the Treasury not the FSA.

Mr Clegg said there were real questions marks about the "workability" of a UK-only bank tax, given that most banks operated across national borders and in many countries.

"It has been debated for many years and it has a lot of practical problems," he told the BBC.

But the Lib Dem leader said he agreed with the "sentiments" expressed by Lord Turner, in a recent interview, that some bank business was not socially productive.

"We over-relied on the City of London for too long and it became too big, too unstable and a lot of what the bankers were doing was of little social value to the rest of the UK."

James Bevan from CCLA Investment Management told the BBC Lord Turner might be trying to sound tough on the City for political reasons.

He said it might be "a ploy to persuade [shadow chancellor George] Osborne and the Conservatives that, were they to be elected, they should retain the FSA rather than pass the baton for regulation to the Bank of England".

The Lib Dems have called for some banks to be broken up, separating their High Street and trading operations, and for a ban on executive bonuses at state-owned firms.

Conservative Mayor of London Boris Johnson described the tax idea as "a bit odd" and said it would not benefit the City or the British economy as a whole.

The City's competitiveness was vital to the economy, Mr Johnson said, but bankers must realise it could not be "business as usual" after the recession and he urged bosses to forego their bonuses or give them to charity.

Chancellor Alistair Darling will discuss plans for tackling the bonus culture at a meeting next week of G20 finance ministers.

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