Wednesday, 16 March 2011

Don't scare off the banks, says Demos

Amid all the suffering - unemployment, welfare cuts, redundancy notices, pay freezes, etc - some of us have turned our frustrations on the banks. Thankfully the self-described 'leading independent think tank in British politics' (Demos) has come to their rescue with a new publication by New Labour's former City Minister Kitty Ussher.

The Guardian reports that Ussher carried out in-depth interviews with senior bankers and gleaned anecdotal evidence that suggests banking may be on the verge of leaving the UK citing rising taxes, threats to split the big banks and scrutiny of bonuses. Hmm, the 'we'll go overseas' line. Ironically the Economist recently gleaned some anecdotal evidence of its own that "they might be bluffing".

Ussher's report asserts that UK-based banks employ "1 million people and supporting a further 500,000 – and data showing the sector brings in £53bn in tax, 11.2% of the UK's total tax take". So best not push them away or that's 1.5 million jobs gone and £53 billion in tax down the swanny?

But Ussher, rather conveniently, conflates two issues: elite speculative investment bankers with the banking sector. Allow me to elaborate. Let's say Bob Diamond and his ilk despair at the bank levy, 50% tax rate, and the findings of the Vickers Commission and decide to relocate their head offices to Zurich. Does that mean every branch of Barclays would close on UK high streets and its 60,000 staff be made redundant? No, in fact no branches would close, and all but a global elite of staff would still work and pay their taxes in the UK.

Funnily enough, I have an ally in the Financial Times too - which wrote the below in its editorial earlier this month:
Such threats should be faced down, not just because they are unreasonable but because they are of questionable credibility.

It is not clear what “moving abroad” actually means. Were a bank such as Barclays to shift its headquarters, the impact on the UK would surely be minimal as it would still do much of its business and pay taxes in the country.

What is more likely anyway is that rather than upping sticks altogether, some banks may reduce their new investments in Britain. This might make the City slightly less of a hot spot, but it would not be a disaster. And were it to be the price of financial stability,this would be a price worth paying.
So where did Ussher's '£53bn in tax' figures come from? Again her anecdotal assertions are of "questionable credibility". Given the total corporation tax take in the UK was only £43 billion in 2010-11 this seems a pretty fanciful calculation. Indeed the report doesn't explain how the figure was arrived at, just that PriceWaterhouseCooopers calculated it.

So what do the banks - not their staff - contribute in tax? According to the Richard Murphy penned TUC report - The Corporate Tax Gap - not much. It says that as well as benefiting from an £850 billion bailout from taxpayers and the Bank of England during the recession, banks are able to offset their £19 billion [cash value] of tax losses between 2007 and 2009 against paying tax on future profits.

In 2009 Barclays paid just £113m in corporation tax - just 0.26% of total corporation tax and a would-we-miss-it 0.02% of total tax receipts.

Let's say the four big UK banks are similar to Barclays - that's 1% of corporation tax receipts and 0.08% of total tax receipts. And we wouldn't have to bail them out again (not that we should have done before without full nationalisation).

Despite what Demos might tell you, there is little to be lost from the departure of these parasitical tax avoiders. Nevertheless expect the Cabinet of millionaires to pay more attention to Demos than to LEAP.

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