So much remains in doubt on bonuses. But what we know for sure is that the Treasury’s entire bank levy revenue estimates between 2011-2014 were made when bonus payments were anticipated to be higher than they had been in 2008. And the idea that the banks should be offered another sop when they should be paying for the mess they created simply demonstrates where this conservative coalition’s priorities lie.
Another day and yet another broken promise by the coalition is staring us in the face. After being told by leading banks that the proposed bank levy could raise an unexpectedly high £3.9 billion a year, the Treasury is set to cut the rate of the tax on UK and international banks to ensure that the figures set out in its June Budget are not exceeded.
This is impressive reverse logic. If a tax raises more than you think it will, and you are trying to cut a budget deficit then that should be good news. Apparently not the for the coalition, despite the fact that in last month’s comprehensive spending review, Mr Osborne said that the bank levy should extract the “maximum sustainable” tax revenue.
Yet now the government is preparing to cut the levy, after intensive lobbying by the City, whose sources have said the move was recognition that if the levy was set too high banks might be driven offshore.
First of all, it’s worth scotching the myth that the levy was ever intended to raise, as some Tories claim, £2.5bn every year. The Treasury and the coalition had detailed in the June Budget red book that the levy would consist of a charge of 0.04 per cent of a bank’s total balance sheet in 2011-2012, generating a meagre £1.1bn, and rising to 0.07 per cent in 2012-13 to raise £2.3bn and up to £2.5bn in 2013-14. In other words, they were looking at generating total revenues of £5.9bn over the coming three years.
Rightly, this has prompted a furious reaction from Labour’s Chuka Umunna, who sits on the Treasury select committee, who said:
“… it’s just a limp piece of legislation and a sop to those who have been arguing that the financial services industry should contribute more to deficit reduction.”
To come back to the City’s scaremongering, the idea that a slightly higher levy will drive banks offshore is nonsense. Last year when Alistair Darling introduced a ‘super tax’ on bank bonuses with the Treasury estimating that it would raise £500 million, City lobbyists immediately hit the airwaves to tell everyone that every banker in Britain would now move to Switzerland or Hong Kong. It didn’t happen.
The tax was wildly successful and the Treasury estimates were wildly off the mark – the tax take turned out to be £3.5bn.
The reality is that this year’s anticipated bank bonuses were expected to be £7bn, although some of Britain’s leading banks are now in talks that could lead to reducing bonus payments to around £4bn. But we shouldn’t start celebrating. One of the bankers involved has stated:
“It’s early days and it’s yet not clear whether we will be able to come up with a workable agreement.”
Even so, that the banks have belatedly realised that paying out bonuses that would, at £7bn, be higher than the amounts paid out at the height of the financial sector crisis in 2008 is obviously welcome, even though £4bn is still, by any yardstick a pretty large sum. However, lending rates to small businesses are still at an extremely low level and the mortgage market remains stagnant.
Any plans to cut bonus payments are more likely to be an exercise in media management to stop ‘banker bashing’ than a sign that banks are now willing to increase lending. Indeed, one of the participants in the talks openly admitted that:
“The expectation is that banks in the City will pay out around £7bn in bonuses. Maybe we can cut that to £4bn. But although that would be a huge reduction, £4bn is still a big number – and we’ll still face attacks.”
So much remains in doubt on bonuses. But what we know for sure is that the Treasury’s entire bank levy revenue estimates between 2011-2014 were made when bonus payments were anticipated to be higher than they had been in 2008. And the idea that the banks should be offered another sop when they should be paying for the mess they created simply demonstrates where this conservative coalition’s priorities lie.Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.