Why is everyone still paying for the bankers' mess – except the bankers themselves?
Ten years ago I was sitting in an office in Mayfair, trading millions of dollars in derivatives for a hedge fund. I enjoyed a bumper year in 2007, as I began to profit significantly from the financial crisis few saw coming.
What I could never have predicted was that a decade on the country would still be paying for that crisis. As Philip Hammond delivers his first Autumn Budget, it’s clear the shockwaves of the global crash are still reverberating through the lives of ordinary people, compounded by the austerity policies that followed.
Frontline services continue to be savaged by cuts – with schools, hospitals, the police and local authorities all experiencing massive reductions to their budgets.
It seems everyone has paid for the bankers’ mess – except the bankers themselves. 2008 should have been a wake-up call, a moment for financial sector behaviour to change but casino activity is undiminished. Once again stock markets are flying, with salaries and bonuses at bumper levels and set to rise again.
I saw first hand how quickly business resumed once the state bailouts and easy monetary policies kicked in. I quit the industry in 2012 disillusioned at how little things had been reformed. Today as a Labour councillor for Haringey, I’ve seen how local services are now stretched to breaking point. The government is struggling to fund its various commitments to education, health, housing and the elderly. And with Brexit on the horizon, a whole new level of uncertainty arises. So what’s the solution?
It’s clear that the time for tinkering around the edges has long gone and that we need action well beyond the Chancellor’s efforts this afternoon, which amount to little more than shifting rows and columns in a spreadsheet.
Bringing the UK’s current stamp duty on shares into the 21st century, closing loopholes and extending to further products including derivatives, would raise an extra £5 billion a year. Not only is this workable, it is eminently feasible and, to my mind, overdue. One year’s worth of this additional revenue could plug last year’s NHS funding gap, fix the social care funding crisis, hire 20,000 new teachers with money left over to build 80,000 affordable homes.
As someone who used to trade derivatives, I’m convinced that a tax on these kinds of transactions can now work. This is largely because since the crisis the City has in some ways reformed itself – albeit for its own survival. Since Lehman and RBS collapsed (with the UK government still sitting on a £25 billion paper loss on its stake in RBS) there has been greater standardisation of the types of products that I used to trade.
Most importantly the majority of these over-the-counter (OTC) derivative trades are now put through a central clearing system – the London Clearing House (LCH) owned by the London Stock Exchange. This makes implementing an efficient and hard to avoid transaction tax of the sort levied on shares far easier to plumb into the system.
Following the first budget since the 10th anniversary of the ‘run on Northern Rock’ and the fallout of a crash that millions of ordinary people are still paying for, the Chancellor’s pledges fall short. Modernising our present stamp duty on shares to capture derivative trades and generate genuinely needed extra tax receipts makes sense for us all – particularly for Philip Hammond and his balance sheet.
Pat Berryman is a Labour councillor in Haringey and an ex hedge fund trader.
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