A scandal is taking place in the City, and I don’t mean the scandal that takes place every day by allowing the sector to create our entire money supply and loan it to us.
This scandal involves leverage of a different kind. Specifically the excuses being made by the big banks to pull out of the government’s Project Merlin plan, aiming to encourage them to play a part in healing the economy they completely destroyed over the previous few years.
Let’s analyse the situation….
Earlier today the government announced that the banks were doing better than expected, and that the bank levy would be increased by £800 million to £2.5 billion in total.
Very quickly bank activist organisations such as the Robin Hood Tax condemned the measures as far too mild, their Facebook status reading:
“Today Osborne announced an increase in how quickly they will introduce the full levy. We expect and deserve more. With banks set to make £52bn profit this year the levy is pocket change to the big banks and they will barely flinch. We need a Robin Hood Tax of £20bn now to help poor people at home and abroad hit hard by the economic crisis and prove we are in all in this together.”
The view that the current bank levy doesn’t go far enough is shared far and wide, not least of all by the International Monetary Fund. In a Guardian article last year the IMF were reported as saying that the bank levy should be at least £6bn.
Labour’s Shadow Chancellor Ed Balls contributed to the criticism by claiming that “Without this bank bonus tax – and with the banks set to benefit from a corporation tax cut – George Osborne has actually delivered a tax cut for the banks compared to last year, even after today’s announcement.”
The banks of course were quick to respond with their own criticism, HSBC chairman Douglas Flint claiming that the levy was a “tax on being headquartered here”.
One of Robert Peston’s sources was quoted in his blog as saying that the heads of HSBC, Barclays, Royal Bank of Scotland and Lloyds will decide this afternoon whether to “throw their toys out of the pram” with regards to Project Merlin. Flint made reference when addressing MP’s to the fact that HSBC will decide this year whether to relocate to another financial centre, apparently “stressing” the fact that this is part of a regular routine and the decision will be made purely on the “economics” of staying or leaving. It makes one wonder the point of “stressing” that a routine procedure will be taking place at all.
Could this be political maneuvering from the banks, trying to warn the government off from making any profit reducing measures? Threats of relocation and not playing ball when it comes to lending to the small businesses they ruined are certain to frighten some.
Other quotes from bankers include “We have been negotiating with the Treasury in good faith, on the assumption that the Chancellor would not spring nasty surprises like this on us. We had no idea this was coming and quite frankly some of us are livid.” and “The whole point of Project Merlin was to reach an accommodation with ministers, to end bank bashing. Is there any point for us of doing Merlin if it begins with what some of us would see as betrayal?”
George Monbiot made an excellent analysis of the corporation tax situation, detailing how in addition to the 4% reduction in corporation tax banks are sure to benefit from, the government is actively encouraging tax avoidance. The new measures might have something to do with the fact that nearly all the members of the seven committees the government set up to handle corporate tax policy belong to organisations such as Vodafone, Tesco, BP, British American Tobacco, HSBC, Santander, Standard Chartered, Citigroup, Schroders, RBS and Barclays.
In the past organisations who would divert money through tax havens, or who operated in countries where they were given corporation tax benefits, or had to pay less anyway were made to pay the difference in tax to the UK. For example, a bank who operated in Cyprus would have to pay 10% corporation tax to the Cypriote government, and then an extra 18% here, to make up the difference. This discouraged organisations from using tax havens, and ensured that large companies who could engage in this kind of activity didn’t have an unfair advantage.
Prime Minister David Cameron, while claiming that “What I want is tax revenue from the banks into the exchequer, so we can help rebuild this economy.”, and that “when you’re borrowing 11% of your GDP, it’s not possible to make significant net tax cuts. It just isn’t.” has changed this policy.
Now the UK will become the second country in the world to allow money that has come from a tax haven to remain untaxed when it gets here. Large and medium sized companies will be the only ones allowed to benefit from this. In the governments own words they expect “large financial services companies to make the greatest use of the exemption regime”.
HSBC will make approximately £15bn in pre-tax profits this year. Corporation tax at 28% on this will be about £4.2bn. The reduction of 4% will mean that HSBC themselves personally save about £600m in tax from the tax cut.
The bank levy is set to raise about £2.5bn this year. HSBC has liabilities on their balance sheet of roughly £2.5bn, which will be taxed the new rate of 0.07%. This means their personal contribution to the levy will be about £175m.
They’re £425m up so far.
About a quarter of HSBC’s business is in the UK, so there are bound to be some significant gains from the new foreign corporation tax benefits.
The HSBC chairman is threatening to leave the UK and throw toys out of the pram when it comes to committing to lend to small businesses, because of an £800m rise in the bank levy. His company is probably set to net that all by themselves with the other benefits the government are sending their way, on the recommendations of government advisors, composed of employees from organisations like HSBC.
You couldn’t make it up.
Help us change the money system!
Trackback from your site.