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Sunday, 6 December 2009

One of my favourite cartoons

.. features two old soldiers, one of whom says to the other "Young people! Our generation fought so they could be free, and now they go and do what they bloody well like."

I was reminded of this by the talk that the government, in a fit of pique, says (through the Peston mouthpiece) that it wants to tax the banks or the bankers, well the British one, or maybe those that are in Britain or something.

After all, runs the government's line to the media, we bailed out the banks, so we deserve something back. Well yes we did. We bailed them some of them out, and got something back in the form of equity at a knockdown price. We guaranteed some of their assets, and they paid us a fee. The government negotiated these deals over many months, so are they telling us they negotiated a bad deal? Indeed, can anyone trust this government if they negotiate a deal in good faith only to find that the government stitches them up by changing the law shortly afterwards?

But, protest the government, if we hadn't bailed out the banks the whole system would have collapsed and all the banks would have gone under. So this justifies taxing not only UK banks but also those that operate here. Not so, the banks that would have gone under were the ones that did go under. The other banks had their own capital cushions and would have survived, in part because they have the capacity to rebuild their capital through earnings, which is precisely what the government wants to tax.

The idea that the government want to slap a tax on foreign banks in London just because they are making a lot of money, from amongst other things, advising the government on dealing with the bailed out banks, shows that the government doesn't really have a clue. Somebody should draw a cartoon about this.

6 comments:

James said...

john redwood much better on this, this morning

Alex said...

"Better" in the sense that it panders to his readers sensitivities, but it is pure codswallop. It is very easy to legislate for a tax on bankers' bonuses.

A bank is easily defined as company licensed to accept deposits under the Banking Act or the UK branch of a foreign bank etc.etc

A banker is a person who works for a "bank" as previously defined.

A "bonus" is a discretionary element of compensation not assured to the employee by contract but awarded by the employer in recognition of individual, group or company performance or profitability.

I have seen harder bits of legislation. What Redwood misses is the fact that the bankers that the government really wants to have a go at are effectively already employed by the government, so the whole posturing exercise is plainly absurd.

The King of Wrong said...

Won't that miss out anyone on a guaranteed bonus, since it is assured by contract?

I agree that it's a relatively simple matter to draft such legislation, though - even if it's nearly as simple to work around the provisions.

How difficult would it be to issue new contract terms guaranteeing everyone a bonus (of at least £1) every year? Before this tax, or the FSA's ability to tear-up contracts, comes into force?

I suspect the City lawyers will soon be earning their bonuses...

Not a sheep said...

Does this iniquitous tax apply to pure Investment Banks? Do they 'take deposits' in that sense?

Anonymous said...

Why is this tax iniquitous?

These businesses rely on a government mandated monopoly to effectively print money. This tax is designed to encourage these institutions to retain profit as capital rather than paying it out to their already well remunerated staff as bonuses.

These institutions contributed to the total collapse of the global economic system last October because they were under-capitalised and improperly funded. This tax encourages them to retain profit as capital.

What is wrong with this? Other than people who are already well paid wont be paid more?

Alex said...

Anonymous said...
"Why is this tax iniquitous?"

I'll do a fresh post on this.