Given the size of the bank bailouts, the government should be more ambitious in dealing with this under-taxed sector
This is a time of year when banks traditionally feel the heat. A few weeks ago they were hauled over the coals for the size of their bonus pots, then – starting with Barclays today – their top brass have begun to be grilled by angry shareholders at their AGMs.
And rightly so – bonuses paid out since the financial crisis passed £100bn this year. During that same period the banking sector has paid only £17.9bn in Corporation Tax. A staggering £7.1bn was put aside this year alone by Britain’s four biggest banks for litigation and fines. It’s testament to how little the banking sector has changed in the past six years.
For political parties on the campaign trail and desperate for revenue, the financial sector is an obvious place to turn.
George Osborne announced during his last Budget that he was extending the bank levy to skim a further £900m from the banks. This comes on top of small additional measures to limit banks’ offsetting previous losses against future tax bills and disallowing PPI compensation as a tax-deductible expense.
Labour has promised to resurrect their bonus tax that will raise £2.5bn, though it’s a one-off measure. They’ve also said they will close the loophole that allows hedge funds and others to avoid paying stamp duty on share transactions, raising an additional £700m a year. Leading City figure Professor Avinash Persaud detailed in a report released earlier this month how this measure, if fully implemented, would raise as much as £2.2bn a year.
Yet given the size of the bank bailouts, and that everyone from the Institute for Fiscal Studies to the International Monetary Fund has said the financial sector is under-taxed relative to other areas of the economy, shouldn’t the next government’s ambition be a bit higher?
Others have been less timid. Eleven European countries have committed to the Financial Transaction Tax (FTT) – at a rate of between 0.01 per cent -0.1 per cent – that will apply to trades in shares and derivatives and raise many billions each year. With Germany and Spain on the right, and Italy and France on the left, governments of all political hues are behind the proposal. Their reasoning is that if their electorate is paying for the banks’ mistakes with austerity, well, by rights the banks should too. As part of their progressive tax agenda, the US is again looking seriously at the FTT too.
Contrary to financial sector claims that the FTT has died a death, negotiations remain on course and a European tax is expected to come into force in 2016. Agreement on the FTT’s scope – including which derivatives are included and how revenue is captured – is expected over the summer.
With Labour committed to tightening the Stamp Duty, itself a form of FTT, the obvious next step is to widen the tax to mirror what’s happening on the continent.
The two main political parties have backed themselves into corners on many tax raising measures – Conservatives were forced to rule out rises in VAT whilst Labour said it would not raise National Insurance. Neither will touch the basic rate of income tax. So when a colossal IOU from the banks to society is still pending, what better place to turn?
Simon Chouffot is spokesperson for the Robin Hood Tax campaignLike 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.