Alistair Darling is reportedly drawing up plans to levy a Windfall Tax on British banks to the tune of £1bn a year.It's difficult to say if this is more a way of propping up the ailing public coffers than a punitive charge for the recession-causing recklessness of some institutions but we will find out the detail on Wednesday when the Chancellor delivers his pre-Budget (not to mention pre-election) report.
Two questions immediately spring to mind:
(1) If this is a way to target super-profits to help out UKplc, then are Tesco (£3bn annual profit), Vodafone (£12bn) and BP (£18bn) also being targetted? If not, why not?
(2) Conversely, if this tax is being levied on all banks, are Barclays being dragged into the liability when it was RBS, HBOS and Lloyds who were the main culprits in getting us into this mess? (According to Robert Peston it will include Barclays; and so will foreign banks with operations in the UK. I would expect a very strong opposition to this from those camps)
I'm all for superprofits being hit with supertaxes but it has to be across the board. We can't strangle RBS and Lloyds before they can walk for themselves and allow non-banking companies to cream in huge profits while the rest of us struggle with food bills and electricity bills.
But Alistair Darling is well and truly on the right path with this one. He may be accused of electioneering with a popular policy, but it's popular for a reason and sometimes electioneering is just simply doing the right thing.
15 comments:
It'll be popular until the banks start charging for cash machine withdrawals (etc) and blaming the government.
I've already closed my RBS account of 19 years over unjustified charges.
Jeff,
It seems to me that nationalised UK banks require to rebuild their balance sheets first, before we call in additional taxation or charges from them. They are supposed to be only temporarily within the public sector and their resale to the private sector, especially with an eye to recouping the taxpayers costs and then some, ought to be our priority.
The problem is that bankers seem unable to eat the humble pie that they need to in the meantime, the bonuses 'flap' showing a complete failure to appreciate just what a favour they were done by the rest of us when they were saved.
It's a hard one to call. Especially from someone with no financial education at all.... like me, for example.
On the surface it does sound like a good idea for Darling to tax them, but then, there is Tesco, and BP... and probably others making super profits.
It’s a strange old thing a recession. For some it is a wonderful blessing... mortgage interest fallen to negligible amounts and people paying off their housing debt, price beaters in all the supermarkets and electrical stores... half price this and that...
If you still have a job it's not a bad place to be.
If you are old and dependent upon savings interest to supplement the meagre state pension, then you are stuffed. Big time. If you have lost your job, or had your wage cut, or your hours reduced, likewise.
Why should BP, Tesco and Vodaphone be able to make massive profits in billions when pensioners are freezing to death in their homes and kids going to school with empty stomachs? Why should RBS be allowed to pay bonuses of over a million pounds to someone who, without taxpayers' support would have been signing on for £63 a week?
On the other hand, why shouldn't they?
Forgive me Jeff for being "off-topic" but have you seen this piece from the Politicshome American blog roll.
I wonder why it hasn't emerged here in Britain yet?
DECEMBER 6, 2009
OUCH: Gordon Brown snubbed by soldiers’ ‘curtain’ protest.
“Gordon Brown was snubbed by badly injured Afghan veterans when they closed curtains round their beds during a hospital visit and refused to speak to him. More than half the soldiers being treated at the Selly Oak hospital ward in Birmingham either asked for the curtains to be closed or deliberately avoided the prime minister, according to several of those present. . . . Furious about equipment shortages and poor compensation for their injuries, one soldier said:’It is almost as if we are the product of an unwanted affair … he has done nothing for us.’” New Labour expects sacrifice but returns no loyalty. This is the result, and they’ll be lucky if it stops here.
Posted at by Glenn Reynolds at 2:32 pm
Interesting that it hasn't surfaced in this country yet.
Nothing wrong with a bit of off-topic here and there but the story was on the front page of the Sunday Times so it's reasonable to say it has "surfaced".
Jess, I think it'll remain popular even if banks charge for withdrawals, which I don't see them doing incidentally.
Douglas, if it's profits that are taxed rather than a standard levy then banks can still rebuild stricken balance sheets while coughing up a bit more to help the economy. You're right though, if RBS etc continue to make losses and have to pay millions on top of that then we have to think what the point is.
Fair point about humble pie, to an extent. That's not really what bankers are known for. The meek inherit the earth, venture capitalists tend to prefer impatient aggressive takeovers.
We don't really need sackcloth and ashes from anyone; just a decent enough route to recovery and noone looking backwards.
There's a simple remedy to the threat of charges for cashline withdrawal. Simply withdraw all your funds in cash. The run on Northern Rock is where this all started. That would worry them.
If everyone in the country gave me 2 pence they wouldn't miss it, but I'd be a millionaire. The massive profits being made by companies like Tesco and Vodafone are because these are massive companies. 3 billion is £50 a head ( and anyway a lot of the money is generated overseas ). Not that much of a profit for keeping us all fat and drunk.
Hi Jeff,
I understood the proposed windfall tax was to be on bank bonuses, not company profits. If so, this seems to me to be a great thing. The idea that organisations which have been bailed out by the taxpayer collectively to the tune of £40,000 per British household and are now substantially publicly owned should consider paying their executives anything above very moderate bonuses in addition to already large salaries is deplorable.
As taxpayers we have to pay all those £40,000's back, with interest, yet they think it appropriate to award themselves bonuses approaching 25% of the profits. I'm all for rewarding hard work but that is absoultely ridiculous.
Applying this accross the banking industry might seem to be a bit hard on Barclays, but without the taxpayer's subsidies there might well not have been a banking industry left. So tough! Game's changed.
Lets hope this might be the start of a brake being put on unrealistic executive salaries around the world, which in many cases amount to little short of theft and extortion of shareholders' money.
Regards,
Ah yes, under the mattress doesn't charge for withdrawals, that's true. Kind of hard to set up direct debits though don't you think...?
Hi Rab,
I guess with no detail it's hard to know but it sounds like an extra corporation tax on the bank if they pay a certain amount of bonuses or an increase in employer NI.
So (whichever of the above) it is a tax on bonuses in a way but not directly as that would suggest an increase in employee income tax which doesn't seem to be the case.
So the executives would still get as much money as before; just that the company itself would face a penalty. Quite subtle and potentially very effective.
Again though, should businesses be penalised for paying bonuses just because they happen to be banks? Do energy companies not have just as much social responsibility as banks given skyrocketing electricity bills, not to mention climate change?
And I wouldn't say it was theft of shareholders' money given Directors are at the mercy of those same shareholders and generally set the remuneration. Certainly theft of taxpayers' money for RBS given the major shareholder (the Government) is explicitly saying 'don't pay yourself big bonuses'.
Overall I agree with you though. Them's the brakes Barclays. We're all in this together after all...!
Jeff
This is a difficult one, and you're right about other large non-banking companies.
But has this come about because of Government frustration at not being able to do anything about the bonus culture? If it has, then Darling should be tackling that issue. And let me tell you from personal experience that this bonus culture is not reserved for banks or the financial services sector. There appears to be a 'roaming elite' who flit from one directorship to the next. Be it a bank or a supermarket; an insurance company or a private utility. And even when middle management or staff fail to get a bonus because a company's performance doesn't meet the expectations of the 'City of London', it's often the case that these directors still get a huge share-related bonus, agreed at the start of their relatively short contract. This kind of thing is commonplace and stinks to high heaven.
Hi Jeff,
I have no problem with successful companies paying large salaries to their directors. My beef is the banks, the most spectacularly unsuccessful companies in history. They are proposing to take these bonuses while having saddled the rest of us with the costs of their folly. That is simply unfair.
You mention the large profits of the Utilities Companies arising from overcharging the consumer. These are the results of faults in the way in which the energy market, as set up by the Tories and unchanged by Labour, operates. The UK regulatory bodies have proved totally ineffective in controlling this. So I think there is a valid case for a windfall tax here.
With regard to excessive executive salaries in failing or only moderately successful companies not being curbed, I think this arises from the way in which most company pension funds are managed by private investment management companies or indeed the large pension companies themselves. It seems it is not in their interests to challenge excessive remuneration as the directors of these companies are in the same exploitative position themselves. The only resistance comes from shares actually owned and managed by individuals and these are a tiny proportion of the whole, hence my view that many executive remuneration packages are nothing short of organised theft.
It will take international government cooperation however to address this problem, which to date has shown little prospect of happening - the prospect of all those City jobs beckoning to soon-to-be-redundant Labour MP's might have something to do with that.
Regards,
Fine points Rab, you clearly know your stuff. All eyes on Wednesday I suppose!
I certainly see no reason for Barclays being excluded.
As I understand it they simply lost out in a bidding war with RBS for ABN AMRO. It was the purchase of ABN AMRO that destroyed RBS so Barclays were simply lucky to be outbid.
They had no more idea of what they were doing than RBS.
The recession causing industry is not banking but big government. With government regualtion preventing the doublingb of our GNP & government eatng up half of what exists, while producing very little apart from paper, it is obvious the bankers can have only a tiny responsibility if any.
This Bill is soin. With most of the bnig banks heavily government owned they could simply order no bonuses. If no bonuses is economically sensible then barclays, who aren't government ownde would gain no advantage. If Barclays would gain an advantage this is obviously a silly policy. The ral purpose is to reinforce the idea of bankers being responsible for the recession while government must have been somewhere else.
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