A tax on banks would cost UK jobs, warns new watchdog

But ex-Lazard chairman urges City to aim for ethical capitalism, says Paul Cahalan

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Indy Politics

Social responsibility must be "sewn into the fabric" of big business in the wake of the financial crisis, the man charged with rebuilding the City's relationship with the public, has said.

But in his first full interview since taking up his post, Ken Costa said the clamour for a Europe-wide tax on the City would cost the UK jobs. Instead, the City of London should work to help write "the Zeitgeist" for a global ethical capitalism, Mr Costa, former chairman of Lazard, one of the world's top investment banks, said.

The Cambridge graduate with a masters degree in theology admits the aims sound fanciful, but said they were long-term goals for his work as chairman of London Connections, a St Paul's Institute initiative of the Bishop of London – which aims to engage the City with a disenfranchised public picking up the bill for multi-billion-pound bank bailouts. Last week, Mr Costa, 62, made the group's first move by facilitating a meeting between Occupy London protesters, who are demonstrating against capitalist greed, and Financial Services Authority chief executive Hector Sants.

The meeting was a crucial step to breaking down stereotypes that have seen demonstrators depicted as "Che Guevara types", and bankers demonised as "Gordon Gekko", Mr Costa, said.

"It was almost a tale of two tent cities," he said. "I met 300 guys outside St Paul's and then I was doing a speech for Business in the Community (BITC) [a charity that campaigns for all businesses to act responsibly]."

That meeting saw executives from Google, Kingfisher and Lloyds looking at environment impact, social mobility and training those coming out of prisons, "different aspects of business than what is normally associated with a business group" he said. BITC works with about one in four UK firms, an example of a growing acceptance that firms must do more in the community and warm the public to business, he said.

But while there were increasing calls for better behaviour from within the business community – beyond corporate social responsibility programmes there first must be universal acceptance there is a common issue to address, he said. Mr Costa, a Christian acting as a poacher turned gamekeeper, is well placed to make that happen.

"I talk widely to business and they know I'm still active in banking, I have two big deals on the go... The concerns they [executives] are expressing are the concerns you and I would have.

"The key is: how do you create a way of behaving that appears to be sewn into the fabric of a company rather than a loosely attached tassel – which too often mission statements and some programmes are."

He accepts there is still widespread anger at banking practices, but said the wrong move would be a Europe-wide [Tobin] tax on financial transactions, which would come at a "massive cost to jobs in this country" and be unsuccessful as businesses would move to non-taxed areas.

"It is not a tax on the banks, it will be borne by you and me and passed on, just as dealing costs are passed on to pension funds, this will be passed straight through the banks and on to the ultimate consumer. If you want to tax people make it clear and transparent so that everybody knows banks are paying the tax," he said.

But far from letting banks off lightly, he said they still had a lot to prove to win public trust after multi-billion-pound bailouts. "It is one thing to turn from the things you have done wrong and it is another to walk the path that is right. Banks have done the turn and now they need to walk on the new path."

The soul-searching following the financial collapse meant there is now room for other capitalism models to flourish, he said, including partnerships like John Lewis, and co-operatives. "We need to bring back some of the models we discarded," he said.

Interaction with the City is a first step, but engagement must involve homes and classrooms, he said. "We are going to launch an ethics pack for schools. Unless these issues are socialised at the schools level, we are never going to get to the point where a discussion on right and wrong becomes an integral part of a person's growing up."

Long term, he has championed challenging the central pillar of capitalism: maximising shareholder value as the most important criteria for business decisions. He admits he doesn't know if that can be done but says the UK must lead the way. "If necessary we may have to change the law ... Actually all you are doing is writing the Zeitgeist. Who is going to jump first? We [the UK] should."

But first he wants to get the bankers and public talking. He said: "I am not going to do a dusty report, prescriptions, nobody pays any attention to them. What we are going to do is to have a seriously interactive process through these meetings to stimulate debate."