Brown in call for global 'contract'

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

Addressing the meeting of G20 finance ministers in St Andrews, Scotland, 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".