Bloomberg News

Lambert Says U.K. Economy Fragile, Showing Signs of Improvement

September 03, 2009

The U.K. economy is in a “fragile” state even though there are signs of improvement, said Richard Lambert, director-general of the Confederation of British Industry.

“The news background around the world has been growing more positive” as trade recovers and some countries such as Germany report a return to growth, Lambert said in a speech in Gateshead, northeastern England. Still, “the economy is still very fragile, with some big question marks hanging over the medium term.” The CBI is the U.K.’s biggest business lobby.

Tight credit conditions for small and medium-sized businesses and rising unemployment pose risks to the economy, Lambert said. The government will have to cut spending and possibly raise taxes to help repair the damage inflicted on the public finances by the recession, he said.

Britain’s economy has shrunk 5.6 percent since the recession started in the second quarter of last year, the steepest contraction since World War II. The Treasury expects the budget deficit to balloon to a record 12.4 percent of gross domestic product in the financial year to March 31, 2010.

Lambert rejected Financial Services Authority Chairman Adair Turner’s suggestion that a “Tobin Tax” on banking transactions may be needed to redistribute bank profits to the poor and curb bonuses linked to financial activity that is “socially useless.”

James Tobin proposed a tax in 1971 on currency trading to deter speculation in the wake of the collapse of the Bretton Woods system of pegging currencies. Tobin, who died in 2002, won the 1981 Nobel Prize for his work on financial markets. Poverty campaigners say the tax would raise money to help developing economies.

Social Value

“I am definitely not” in favor of a Tobin Tax, Lambert said. “In a free society, it’s not the job of a politician, or for that matter, or a regulator, to argue that a particular form of activity is or is not of social value.”

Concerns about a special tax on financial deals, bankers’ pay or the social value of products such as credit derivatives are less important than questions about how to get credit flowing again or ease the burden on taxpayers of supporting banks, he said.

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net


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