A US-style levy on banks?

President Obama has outlined plans for a $117bn bank levy - in order to recover money that was spent by the taxpayer on the bailouts. Britain must not follow suit.

Although such a move would prove to be a substantial vote-winner, it does not make any economic sense. The situation in Britain is different to the USA. When Britain bailed out banks, the process partly involved buying shares of the company.

However, a Labour backbencher, MP John Mann called for tougher restrictions. He claimed that bankers have "nowhere else to [threaten] to go" if we levy taxes on banks because America is no longer an option. This statement is utterly fallacious. Banks could easily move to the far east, where costs are substantially cheaper. We must be careful not to overreact to public outrage by being too harsh on banks. It will simply prove counter-productive for us in the long-term. Nevertheless, a tax could be more justified if several major economies agreed as well.

If punitive taxes were levied on banks because the government succumbed to public pressure, it could be fatal. Instead of punishing banks, the public may be punished. The taxes could translate into higher prices for consumers.

There is a need to reform banks in Britain. However, our desire to eradicate the reckless behaviour of bankers must not result in any rash decisions. We must err on the side of caution, if London is to remain competitive in the future.