FTSE 100
Dow Jones

Sunday, 20 February 2011

Lay off Barclays

I have no problem with people whoi have a go at Barclays and their tax avoidance, provided they know what they are talking about, but most of the current comments from the usual sources (including the tax avoiders at the Guardian) is so ill informed that is is beyond contempt.  Have the criticsread and understood Barclays accounts?  It seems not. Have they seen their tax computations?

Of course they haven't and neither have I, but to me it seems me that there is little amiss with the fact that they only paid  £113 million in UK corporation tax last year. That is still  £113 million a year more than the Guardian or the Labour Party.  Are they still massive avoiders?  Hardly because it seems they pay £1.5 billion a year in corporate income taxes at an effective rate of around 25% of their profits which is hardly reflective of major tax avoidance when the UK headline rate is 28%.

So why is the UK rate so low.  Well a lot of their business (60%) is conducted overseas, and while they still have profitable UK businesses, they also have £800 million of head office costs in the UK, which would mean credit control, accounting, banking operations, IT, personnel, training and similar costs, which are all part of running a big bank.  That gets set against their UK taxable profits.  The other major reason is that despite the Labour government (or rather HMTRC's) attempts to legislate tax based finance leasing out of existence, Barclays still have a continuing book, albeit limited to a small class of assets.  That creates capital allowances which reduce their tax bill for the moment.

Is this all bad?  Hardly, any leasing is financing UK capital investment, while the £800 million of head office costs will be mostly staff costs, which means they are paying £800 million of taxable salaries to UK based employees so the revenue still gets its taxes but by a different route.  In fact it gains because it gives Barclays relief at 28% while picking up employee income tax at 20%/40%/50% plus employee and employers NI.

Contrary to what many of the critics say, the banks have not been subsidised by the government. 
  1. The banks do not receive any general guarantee on their assets.  It is the banks customers who may receive some implicit guarantee. Thje bank or rather its shareholders bear all the loss. The deposits were always liabilities of the bank, not its assets, so they were not the banks' to lose.In return for this support the banks allow the government to regulate their businesses.  As a result the government can be seen as equally culpable if a bank fails despite the regulatory system.
  2. The banks did not receive a subsidy by being bailed out.  They sold shares to the government for value (fair enough, you would hardly expect them to give the shares away).
  3. The banks did not receive a subsidy when the government agreed to wrap a 0% risk weighted guarantee around the second loss position on a large part of some banks' asset books.  The banks paid an insurance premium of several billion.  An arms length bargain is not a subsidy.


Bill Bell said...

This post either displays total naivete about how the financial system works or is dishonest in its portrayal of the way in which banks have been implicitly supported by the taxpayer.

Either way, erm, I disagree.

Steven_L said...

I've laid off all the banks and just trade my own savings.

Who needs a loan with spread betting?