David Prosser: Demanding more flesh from banks

Outlook If bankers thought that one of the few positive effects of the new tax charges on bonuses might be that it would mark an end to open season on their kind, it did not take long for them to be disappointed. While readers of most newspapers woke up yesterday to stories about that new levy, The Wall Street Journal had an additional little treat for banking folk: an editorial jointly penned by Gordon Brown and Nicolas Sarkozy that effectively relaunched the campaign for a new global tax on financial transactions.

This is the so-called Tobin tax that the Prime Minister called for at the most recent G20 summit in St Andrews, only to fall strangely quiet on the matter when it emerged that other countries were not so keen. It would be a small levy – maybe 0.5 per cent – charged on all financial transactions, both on- and off-exchange everywhere in the world, and would raise many billions, assuming that all major financial centres signed up.

Just to press the case further, the Treasury also published a discussion paper yesterday that "considers ways in which the financial sector might contribute to the potential costs of any residual risks it poses to taxpayers and to broader social objectives". In case you are in any doubt, the paper's leading candidate for that contribution is the transaction tax.

Is the Tobin tax really a flyer? In truth, probably not, even if Mr Brown has now secured the backing of his new French ally. For the levy to work, it needs unanimous support and the Americans went on record at St Andrews to reject the idea. Other leading economies have also made their opposition clear.

Still, the latest efforts by the Prime Minister in this area run counter to the allegations made against him by the Conservatives, that he floated the tax purely so he would be perceived as being tough on the banks. In recent weeks, the Government has proved it is prepared to act: first by making it clear they would take on Royal Bank of Scotland over bonuses, then with the bonus tax, and now with this renewed debate on a transactions levy.

This intervention by Messrs Brown and Sarkozy may also serve as a handy little reminder to the International Monetary Fund, which promised, in the wake of the St Andrews summit, to put some serious thought into the potential for a Tobin tax, or alternative fundraising exercises.

Before taxpayers get too excited about the idea of a levy on the banks making a substantial dent in the Budget deficit, remember that the primary objective of any of these measures would be to pay for an international bail-out fund that would cough up in the event of future banking crises. Any money raised is not going to be spent reversing public spending cuts or tax rises.