Boris Johnson described proposals for a tax on City trading as “crackers” yesterday as critics lined up to attack the idea floated by Lord Turner of Ecchinswell, the chairman of the Financial Services Authority.

The Mayor of London said it was perverse to propose a tax that would hit London and help rivals such as New York and Frankfurt. The CBI, the employers’ group, the Investment Management Association (IMA) and the British Bankers’ Association also questioned the wisdom of a levy on City trading.

In an interview with Prospect magazine published yesterday, Lord Turner said that some City activity was “socially useless” and needed to be cut down to size, through the use of a tax if new capital rules proved insufficient. The City had swollen to excessive proportions and was sucking in too much graduate talent to the detriment of other sectors in Britain, he said.

He also signalled a dramatic change in tone for the FSA, which would no longer lobby for City interests. “The FSA has to be very, very wary of seeing the competitiveness of London as a major aim,” he said. That shift of emphasis came in for particular attack from Mr Johnson. “Anyone who seriously believes that the competitiveness of the City of London should not be of paramount importance or a major aim of the FSA is crackers. I’m sure that on reflection Adair Turner would not want to imply that,” he said.

But Lord Turner, who is on holiday, declined to row back from his position. An FSA spokesman said yesterday that, while the FSA needed to have regard for the City’s competitiveness as a guiding principle, it was not one of its four main statutory objectives. John Cridland, the deputy director-general of the CBI, said: “The Government and regulators should be very wary of undermining the international competitiveness of the UK’s financial services industry, especially at the current time. It provides jobs and tax revenues, and is an area where we have world-class talent. Proposals for regulatory change should be agreed in a global context, which will produce better results and avoid damaging the UK’s position.”

Dick Saunders, chief executive of the IMA, said Lord Turner was right to say banks needed to manage risk better. “However, transaction taxes carry the risk that, like stamp duty, it’s the ordinary saver who ends up paying,” he said.

Howard Wheeldon, senior strategist at BGC Partners, said he was appalled by Lord Turner’s remarks, which he said were “insulting” to bankers.

But the left-leaning pressure group Compass has welcomed the proposal and applauded the description of some banking as useless. It said: “We welcome serious ideas to curb the excesses of the City.”

Jose Manuel Barroso, President of the European Commission, added his weight to calls for a bonus crackdown, saying that there should be limits.

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