Sunday, 13 February 2011
Banks' bluster can't disguise lightweight levy
The UK bank bailout was £1.3 trillion. The UK’s big five banks made pre-tax profits of £15bn in the first half of 2010. Let’s estimate the second half of 2010 was as good and their annual profits were £30bn. Bank bonuses were estimated to be over £7 billion last year. Osborne's levy of £2.5 billion (and let's see how much is actually collected) is a drop in the ocean - especially when Osborne is cutting corporation tax every year for the next four years.
Very good analysis in yesterday's Morning Star:
This levy will not do
Judging by the headlines it's been a tough week to be a banker. Not only have they been subject to "Project Merlin," which set minor restrictions on their multimillion pound bonuses, but they also have had the levy on their borrowing increased. Times are indeed tough for the leading members of the top 1 per cent of earners. Or are they?
Chancellor George Osborne slapped - well, more precisely, tickled - bankers with the levy at the beginning of the week following a period of prolonged procrastination by the Treasury over the question of limiting their runaway bonuses.
But far from being a "pre-emptive strike against the City," as the Telegraph exclaimed earlier this week, the levy is tame and easily manageable by the banks.
So what are the facts? Well, the government aims to increasing the levy on banks' borrowing to £2.5 billion this year, an extra £800 million on its previous plan.
This represents an annual tax of 0.075 per cent on the value of all of the debts of British banks.
The coalition is adamant that the levy on bank balance sheets is the best way of making sure companies make a fair contribution to tackling the deficit.
However, despite banks reportedly being "livid" at the levy, unions have described the move as a mere "drop in the ocean."
The £2.5bn figure represents only 10 per cent of the overall profits made by Britain's banks last year.
And when you consider that banking profits were in the region of £25bn, compared to the National Audit Office statistics showing that the financial sector still owes £90bn to the public following the taxpayer-led banking bailout, to say that the banks have got off lightly is an understatement.
Despite this City representatives have suggested that the higher levy calls Osborne's commitment to bankers and big business into question.
This seems odd given the news - as if Star readers really needed it - disclosed earlier this week that more than 50 per cent of funding for the Conservatives' general election campaign came from financiers in the City of London.
Over £11m was donated, according to an investigation by the Bureau for Investigative Journalism, a figure which puts real meaning into the saying: "He who pays the piper, calls the tune."
Unions and even the shadow Labour cabinet have highlighted this link as proof of Osborne's inertia in dealing with the banks and their behaviour.
Left economists have been busy too, providing much-needed analysis and counter balance to the agenda being thrust on the British public over this issue.
Left Economic Advisory Panel co-ordinator Andrew Fisher and left economist Michael Burke point out that, as a result of the coalition's cuts to corporation tax, the rise in banking profits will actually be higher than the £800m increase in the levy that Chancellor Osborne is imposing.
"Corporation tax is being reduced this year to 27 per cent - this would save £1.1bn for the UK banking sector," Fisher tells the Morning Star.
"One also has to look at how banks manage to disguise their balance sheets, for example through subsidiaries and how much the Treasury actually collects."
Fisher adds that the bank levy will only pull in an estimated £10bn over the next four years, while welfare will be cut by £18bn over the same period as the government pushes to slash Britain's budget deficit.
"The poor are paying more for a crisis they did not create," says Fisher.
And scant regard has been paid to any possible and immediate alternatives.
Although differences exist in exactly what to do with the banks, left economists are clear that it is not simply a question of how big the levy is. They argue that the whole relationship between the state and the bank must change.
"The way out of the banking crisis and the economic crisis is the same - instructing the banks, starting with the state-owned banks, to lend for productive investments," says Burke.
"This would both increase their profitability, to the benefit of taxpayers, and boost growth to the benefit of all."
University of the West of Scotland Professor John Foster goes further.
"The only way to get money out of the hands of speculators and into the productive economy is for the retail banks to be fully nationalised - and for the government to close down the centres for unregulated speculative banking and tax avoidance in Britain's crown dependencies," he says.
Update: excerpt from Prime Minister's Questions on bank bonuses. Miliband exposes Cameron's rhetoric, but Cameron's retort is fairly spot on to be fair.