Brown calls for global 'social contract'

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Gordon Brown today called for a new global "economic and social contract" with the financial institutions to ensure taxpayers around the world would never again have to bear the cost of banking failure.

Addressing the meeting of G20 finance ministers in St Andrews, the Prime Minister said that in future there must be a "just distribution of risks and rewards".

"I believe we should discuss whether we need a better economic and social contract to reflect the global responsibilities of financial institutions to society," he said.

"This is a unique sector that, when it fails, imposes such a high cost to the wider economy and damage to society that government intervention becomes essential. So the taxpayer had no real choice but to step in to keep the system afloat.

"And 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.

"There must be a better economic and social contract between financial institutions and the public based on trust and a just distribution of risks and rewards."

Mr Brown said that it could be achieved through an insurance fee to reflect systemic risk, a special "resolution fund", contingent capital arrangements, or a global levy on financial transactions - a so-called "Tobin tax".

Mr Brown stressed that in order to work, the measures would have to be implemented by all the major financial centres around the world - including the US, Europe, Asia, the Middle East and Switzerland.

"Let me be clear: Britain will not move unless others move with us together," he said.

The measures would also have to be "non-distortionary" - to ensure they did not result in inefficient allocation or encourage avoidance - and should reinforce the action already taken to stabilise the financial system.

He stressed that the contribution of the financial services sector would have to be "fair, measured and enable financial services to make their necessary contribution to future economic growth".

"I do not in any way underestimate the enormous and difficult practical and technical issues that will need to be overcome that a globally cohesive system raises," he said.

"But I do not think these difficulties should prevent us from considering with urgency the legitimate issues I have discussed.

"Those goals are ambitious but they are necessary.

"I believe in a strong global financial sector. I believe in an open and inclusive globalisation. But I believe that the global economy and global society will only thrive if it is brought within a rational and fair framework."

Mr Brown again warned that it was still too soon for countries to consider withdrawing the one trillion dollar "stimulus" package which they agreed to support their economies.

"While recent indications of economic expansion give cause for cautious optimism they are not a reason to end economic stimulus prematurely," he said.

"It would be dangerous to put recovery at risk by suddenly cutting off the funding and investment that is supporting families and businesses through the most challenging times in a generation."

He said that when the time came, it was important that countries were able to co-ordinate their "exit strategies".