George Osborne thought his failure to secure any agreement on bank bonuses and lending plus his cynical ruse to give banks a massive corporation tax cut had been missed.
George Osborne was probably hoping for some bouquets after he told the press he was planning to increase the bank levy to £2.5 billion in 2011/12. That was probably because he thought that his failure to secure any agreement on bank bonuses and lending plus his cynical ruse to give banks a massive corporation tax cut had been missed. Bad luck, George: you’ve been rumbled.
On Radio 4 this morning, the chancellor said he would be able to increase the bank levy to £2.5bn this year, a figure that will be matched in the remaining years of this Parliament. He said that this was because banks’ performance had been stronger than expected (hardly a surprise when the banks have benefited from easy access to cheap money on the wholesale money markets), and added that he wanted the banks to be aware of the increase in the levy so that he could negotiate new rules on bonuses and lending in “good faith”.
Mr Osborne added that the increased levy was part of the government’s commitment to “more lending, more tax, a bigger contribution to society and less bonuses” – conveniently ignoring the fact that he has failed abjectly on all of these counts.
Shadow chancellor Ed Balls immediately pounced on the statement, accusing it of being a “panicky announcement” in order to distract attention from the failure of ‘Project Merlin’, the government’s attempt to secure commitments from the banks on lending, transparency and bonuses which has apparently collapsed.
Besides, as the Office of Budget Responsibility’s own figures show the bank levy will only bring in £1.2bn when you include the £100m corporation tax cut the banks will receive in 2011/12, a figure that will increase every year during this Parliament. Indeed, the bailed-out Royal Bank of Scotland, 84% of which is owned by the UK taxpayer, is not expected to pay any corporation tax until the end of next year owing to a £6bn tax credit it holds as a result of the losses it has made since the financial crisis.
This compares with the £3.5bn raised by Labour from last year’s bonus tax and the further billions in extra revenue that would be drawn from a financial transaction tax which Labour supports.
Conveniently, Mr Osborne failed to reveal the actions of his own MEPs, who last week voted against a European Parliament report that overwhelming supported the introduction of a financial transaction tax.
Until now, he has remained quiet on the issue of a financial transaction tax, save for criticising Labour for supporting a tax that, he said, could only be workable if it secured widespread international agreement. With the European Parliament and the French and German governments re-affirming their strong support both for a global and an EU specific financial transaction tax, it is now clear that the Tories will oppose it even if such agreement exists.
Meanwhile, not content with being rumbled on bank taxation, the chancellor’s crude attempt to change taxation law so that multinational companies, including Britain’s banks, pay a fraction of the corporation tax they currently pay on earnings made by their non-UK based subsidiaries was brutally exposed by the Guardian’s George Monbiot this morning.
At present, an institution which pays a lower rate of corporation tax on overseas earnings is required to pay the difference between that rate and the UK rate of 28%. Under the Tory-led government’s legislative proposals, institutions will not be required to make up this difference with the government saying that it expects “large financial services companies to make the greatest use of the exemption regime”.
It’s almost possible to feel a bit sorry for Britain’s embattled chancellor. He and his spinners probably thought today’s announcement would bring some cheer to a government with flagging poll ratings on its economic competence and willingness to take on the banks; little did he know that the sheet had already been whipped from under him.
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