LONDON, Aug 26 (Reuters) - The chairman of Britain's Financial Services Authority (FSA) said he would back higher taxes on the country's financial sector to prevent institutions making excessive profits and to curb excessive pay.
"If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit," Lord Adair Turner in an interview with Prospect magazine, quoted in British media.
The return of big bonuses has rekindled public anger, particularly bonuses at banks that needed shoring up with taxpayer money at a time of rising unemployment and difficulties faced by businesses in obtaining loans.
Curbing financial activity and remuneration is limited by the difficulty of agreeing watertight rules and also by fears that countries taking tough action may suffer a competitive disadvantage versus other financial centres.
Turner also said it was no longer one of his primary aims to promote the status of London as a global financial centre.
"Higher capital requirements against trading activities will be our most powerful tool to eliminate excessive activity and profits," he said.
"And if increased capital requirements are insufficient I am happy to consider taxes on financial transactions -- Tobin taxes," he said, referring to U.S. economist James Tobin, who suggested a tax on foreign exchange transactions in the 1970s.
"The really fundamental question is whether the overall level of financial services pay is a consequence of the swollen financial sector which has resulted from oversimplistic financial deregulation," Turner said.
"This is not a question that any of the politicians have focused on but I think it's an important and legitimate issue of public concern," he said.
Opposition Conservatives said last month that the FSA should be abolished and the Bank of England be put in full charge of supervising financial institutions. The Conservatives are tipped to win an election due by June 2010. (Reporting by Humeyra Pamuk; Editing by Louise Ireland)