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Brown proposes tax on bank transactions

LONDON: World’s leading economic powers, including India, were on Saturday urged to consider imposing a tax on financial transactions by banks in order to build a global fund to bail out failed banks in future.

The so-called Tobin tax, named after the Nobel laureate James Tobin, could also be used to fund social causes as part of a new “social contract” with banks.

The proposal, which was dubbed a “verbal hand-grenade” because of its radical nature, was made by Prime Minister Gordon Brown while addressing a conference of G20 Finance Ministers at the seaside town of St. Andrews in Scotland.

A high-level Indian delegation led by Finance Minister Pranab Mukherjee attended the conference — the third gathering of G20 Finance Ministers this year as world leaders struggle to reach an agreement on anti-recessionary measures.

Calling for greater accountability by banks, Mr. Brown said it was not acceptable that while banks reaped the rewards of success taxpayers paid for failures. Imposing a tax on banking transactions was one way of protecting taxpayers from having to bail out failed banks in future.

“We should discuss whether we need a better economic and social contract to reflect the global responsibilities of financial institutions to society… it cannot be acceptable that the benefits of success in this sector are reaped by the few but the costs of its failure are borne by all of us,” he said.

But he made clear that the scheme would work only if accepted globally saying: “Britain will not move unless others move with us.”

Mr. Brown acknowledged that there were “enormous” practical and technical issues involved but said this should not “prevent us from considering with urgency the legitimate issues I have discussed”.

His proposal took many by surprise as in the past Britain has opposed “Tobin tax” on grounds that it would affect the country’s financial sector. BBC quoted sources close to the Canadian and American delegations as saying that their response could be “lukewarm”. The British Bankers’ Association was also quick to question the effectiveness of such a tax. Mr. Brown also called for urgent action on funding climate change by helping developing countries adopt more environmental-friendly measure — a point also stressed by Chancellor of the Exchequer Alistair Darling.

Mr. Darling urged the Finance Ministers to agree a deal on funding ahead of next month’s crucial U.N. summit on climate change in Copenhagen.

He warned that the summit was doomed to fail if no agreement on funding was reached before that.

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