A US-style fee on banks here to help close the deficit?
January 12th, 2010So Obama is proposing a fee/tax on US banks to recoup by the end of this year nearly half the cost of bailing out the banks. Why not the same here? The US Treasury intends to make the banks pay back some $175bn (48%) of the $364bn of the bail-out outlay. Here the level of national debt has reached, including credit guarantees and asset protection schemes, £870bn and is expected to rise to some £1.4 trillion by 2013-14. Actual expenditure on bank bail-outs in the UK so far has been, relative to size of economy, even higher in the UK than in the US:
Northern Rock £26bn, Bradford & Bingley £42bn, RBS, Lloyds and HBOS recapitalisation £37bn (October 2008), and a further recapitalisation £39bn a year later – producing a grand total of at least £144bn. Yet the amount repaid by UK banks has been only a small fraction of this – less than 10%. When bank profits are booming and stockmarket prices have now risen 70% above their low point in March 2009, why not require the same recoupment here?
Despite all the kerfuffle over the proposed 50% tax in the UK on bank bonuses above £25,000, that was originally expected by the Treasury to raise a miniscule £0.5bn. It now seems that if City firms are determined to pay out the same level of bonuses, net of tax, that they were paying prior to the tax, i.e. by paying out an eye-watering £40bn in bonuses this year, the Treasury may end up clawing back some £2bn. But £2bn is little more than 1% of the total outlay on bailing out the banks. The key point is: if the UK banks are still able to pay out £40bn in bonuses, why can’t they be required to pay back that sum instead to the taxpayers who saved them from destruction in the first place? Even £40bn is still only 27% of the £144bn they originally received to keep them afloat, far less than the US banks are being made to repay.
Because the banks are being allowed to hold the country to ransom, other far more valuable and important sectors of the economy are being forced to pay the penalty instead. The universities are being expected to cut back to the tune of £2.5bn which could seriously damage higher education for a decade. Manufacturing is being hit hard, with unemployment at 2.5 million and rising, yet the country’s long-term future security depends far more on the real economy than on the City of London. This is a monumental scandal, yet with an election in the offing it is almost incredible that both main parties are committed to the policy of untouchable protectionism for the banks, as though no price was too high for the rest of Britain to pay to keep them in clover.
January 13th, 2010 at 5:37 pm
Could Michael (or anyone else) explain to me how the state-rescued banks have calculated that there is a “surplus” of funds available for distribution as “bonuses” in the first place? Before we discuss the more controversial subject of whether or not bonuses should be payable or are deserved, I and I’m sure many others would like to know how there can be a pot of money available for discussion at all. Surely “bonuses” could only be considered possible as a result of “profits”; that is to say, a greater amount of income over the amount of outgoings or liabilities. Surely any excess of income over outgoings should be first used to reduce the bank’s liabilities – the debt that is owed to the taxpayer for bailing it out of certain collapse? If, after all debts are paid off, there is still a surplus of profit over outgoings (doubtful surely) then a dividend to shareholders could be considered, and only then could distribution of additional rewards in the form of bonuses to staff members who had worked particularly hard to achieve good results be considered possible (whether appropriate or not is debatable). Incidentally, since we are told that the taxpayer is now a major shareholder, shouldn’t we receive any dividend applicable? Do we? But the main question remains – for me at any rate – how is there any surplus money available for bonuses at all under the circumstances I have mentioned earlier? Can anyone explain this?