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A tax on Lloyds, Royal Bank of Scotland and Barclays

Robert Peston | 21:12 UK time, Tuesday, 22 June 2010

British banks might think they got off lightly.

The new bank levy announced by the Chancellor George Osborne will raise more than double the £1bn he said would be generated from such a tax when outlining his plans prior to the election - or £2.5bn a year by 2013/14.

But that £2.5bn is a fraction of what the Tories' coalition partners, the Liberal Democrats, wanted to extract from the banks.

And the tax rate - 0.04% next year, rising to 0.07 in 2012/13 - is well short of the 0.15% rate proposed by President Obama (although his tax would die after a bit more than $100bn has been raised).

Which probably explains why banks' share prices didn't move much today (Lloyds up, RBS up less, Barclays down a bit).

So the prevailing mood in the Treasury tonight will be one of slight frustration that they didn't set the rate a bit higher to raise more incredibly useful wonga, given that investors were plainly discounting something worse.

That said, the levy - which is fixed only in the generality, and will be implemented in January after a period of consultation - is an important new tax.

That 0.07% rate will apply to banks' total liabilities, minus Tier capital, insured retail deposits, repos secured on sovereign debt and policyholder liabilities of retail insurance businesses within banking groups.

If that's all gobbledegook to you, I will attempt to translate.

The charge will be levied on that part of a banks' funding that is perceived to be less reliable, viz the money provided by other banks, financial institutions and wholesale creditors. This is the finance which dried up in the summer of 2007 and started the chain of calamities known as the credit crunch - which in turn precipitated the great recession of 2008-9.

So excluded from the levy will be capital that is there to absorb losses, deposits from the likes of you and me - those oh-so-dependable retail deposits - and most financing provided by central banks. What's more there will be a lower levy rate - 0.02% rising to 0.35% - on wholesale funding where the repayment date is more than a year away.

In other words, there are two ways of looking at this levy: as a money raising exercise; and as a penalty for banks perceived to be financing themselves in risky ways with the potential to impose costs on society, on taxpayers, if it all goes wrong.

Or to put it another way, the government is signalling that it wants banks to reduce their dependence on such wholesale funding.

Which may seem like a good thing.

Except that our biggest banks have for some years provided many tens of billions of pounds of loans - especially mortgages - on the back of such wholesale finance.

So if they were to reduce their dependence on wholesale finance, there is a reasonable probability that they would cut back on the useful credit they provide to households and businesses, especially in the short term.

Which would not necessarily be such a good thing while the economy remains somewhat fragile.

That said, the levy has been calibrated at such a low rate that it would probably be wrong to expect massive behavioural changes - apart, that is, from the reduction in dependence on wholesale finance that is being independently demanded by regulators.

So which banks will pay the most?

Well no bank with eligible liabilities less than £20bn will pay a bean. Which would certainly rule out most of the building societies and smaller banks - although on the basis of its 2009 balance sheet, Nationwide would pay the levy.

But the tax would be applied to the global consolidated balance sheets of British banks, the UK subsidiaries or branch balance sheets of foreign banks, and the balance sheets of UK banks that are part of non-banking groups.

What that says to me is that Lloyds, Royal Bank of Scotland and Barclays will all pay a fair whack - because each of them are significant users of wholesale funding, and have very substantial balance sheets.

But HSBC and Standard Chartered will get off pretty lightly, because they are relatively light users of wholesale money and they finance most of their lending through customer deposits.

Which may be just as well, because HSBC and Standard Chartered are the two banks which would find it easiest to relocate their head offices to parts of the world where there's unlikely to be such a levy (in their case, Hong Kong and Singapore, respectively).

As for the related danger, that this levy on the UK operations of the likes of Deutsche Bank, BNP, Goldman and so on will persuade those banks to emigrate from the City of London - thus depriving the UK of employment and other tax revenues - that's much less likely to happen if the US presses ahead with the bank tax I mentioned above and the likes of Germany and France make good on their promise to impose similar taxes.

So long as the home countries of the biggest banks operating in the City also impose new bank taxes, the UK economy can prevent a mass exodus of banks - so long as arrangements are put in place to prevent these banks being taxed twice (which the Treasury says is part of the plan).

That, of course, only confirms my view that when the dust settles, this tax will end up being paid mainly by the troika of Lloyds, Royal Bank and Barclays - and can therefore perhaps be seen as permanent punishment for the way they held the economy to ransom in late 2008.

Comments

  • Comment number 1.

    'as permanent punishment for the way they held the economy to ransom in late 2008.'

    Going to be a long time before that particular book is balanced.

    Meanwhile - when is the current double digit interest rate on loans going to drop, because that is linked to getting things going again. Or are we meant to be held in a permanent lockdown by the banks.

  • Comment number 2.

    What rubbish. Calculate the loss of personal wealth, the costs of the bailout and the interest the banks are charging to lend the money back that saved them and I would guess the balance sheet is very favorable on their side. A pretense of them contributing to the mess they created. When you own all the votes there really isn't much people can do about it. Last year the bonuses handed out by the banks to their employees was a much larger sum.....oh..they share our pain....please..political stragetist counting on the ingorance of the public to buy into this nonsense. Pigs with lipstick are still pigs.

  • Comment number 3.

    So the banks take money voraciously from the populous through inflationary, fractional reserve lending, mis-selling, onerous charges and any other wheeze that they can design. To punish them the government take some of the money off of them by force and gives it back to members of the populous that it deems worthy. The government then expects the thanks of the populous as we are all in it together.

    Is it me?

  • Comment number 4.

    When a bank takes on liabilities in excess of its capital and insured deposits etc., in order to lend to their customers, the effect on the economy is similar to that caused by a central bank increasing the money supply, especially if the bank's liabilities are in effect underwritten by the tax payer. The important difference is that the financial rewards of in effect printing money accrue to the shareholders of the bank instead of the taxpayer.

    If the banks did not lever up the money supply in this way the central bank would be able increase the money supply by QE, which is essentially lending money to the government at zero interest. (Assuming of course that the central bank is state owned so that any nominal interest returns straight back to the Treasury as central bank profits.) So by allowing banks to apply leverage to their reserves, taxpayers are essentially handing the profits to be made by printing money to private banks.

    Fairness to taxpayers requires that the levy paid by banks should be at least as high as the current cost of government borrowing - much higher than the rates proposed. The levy should be paid only on sterling liabilities underwritten by the state. Liabilities denominated in foreign currencies, should not be underwritten because of the exchange risk involved.

    Apart from the advantage of plugging a leak of profits which could be made by the central bank on behalf of the taxpayer as the economy expands and the money supply is increased, a levy rate linked to Treasury bill discount rate would act as a stabiliser for the economy. The bank levy would automatically increase or decrease as the cost of public borrowing increased or decreased.

  • Comment number 5.

    Good grief. If the banks can afford £2.5bn in tax then lets have another £500m in risk equity capital so we can fund all those start-ups that Ozzy has reduced NI for.

  • Comment number 6.

    Lets be absolutely clear to a very large extent the problems with our public finances are the result (directly or indirectly) of bailing out the banks.

    The new tax on the banks is in reality little more than a PR exercise. It is public sector workers and those on benefits that are being asked to carry the disproportionate burden of the deficit reduction exercise.

    Unfortunately even allowing for the civilising influence of the LibDems it is apparently a lot easier for this government to beat up on the public sector and those on benefits than it is to make the bankers pay their fair share for the mess they created.

    Such a policy may be smart politics but it is not fair or just.

  • Comment number 7.

    What is with this wishy-washy government, in my day, the chancellor got up to speak at 2:00pm, he waffled on a bit till about 4:00pm and taxes (usually petrol, beer and fags) applied from 6:00pm.

    So why didn't George do the same format, stand up at 2:00pm, waffle on a bit and at 3:55pm announce that the cost of a UK banking license will rise to £100bn applicable at 6:00pm. Anybody who did not want to comply could hand over their license at 6:02pm for a discounted rate of £10bn.

    Bankers pushed for de-regulation, bankers pushed unfeasible LTV ratios, bankers created SIV's. Bankers have cost this country almost £7.2tn (yes trillion) in lost productivity

    £3.2bn over 3 years (tax deductable) is a small bonus pot.

    So much for 'Crime doesn't pay'

    So Mr Chancellor, explain to me exactly why I should pay my taxes.



  • Comment number 8.

    "wholesale funding" - What a phrase ! It sounds so real, solid; 'industrial' even.
    A worked example of "Wholesale funding" :
    The Chinese 'sell' a plastic toy to an Englishman for £1.
    The Englishman 'pays' for the toy with his credit card.
    The Englishman owes the Credit Card company £1, the Credit Card Company owe the Chinese £1
    The Englishman pays the credit card company £1, the Credit Card Company pays the Chinese £1.
    But all 'paying' means in the banking world is "re-assigning the liability owed to party A by a Bank to Party B".
    So now a UK bank, instead of a Credit Card company owes the Chinese £1. So despite having 'Paid the Chinese'
    we are still in debt to them !
    The Chinese are then 'stuck' with lots of UK (and US and everyone else's money) sitting in low interest earning current accounts.
    If the Chinese jump into the grandiose named 'Wholesale funding market' and buy mortgage backed bonds from UK and US banks then this can help the people who eventually receive this money - from selling their house - to buy more Chinese toys; and the lower the mortgage rate the higher the house prices,,, What a money-go-round ! - These Chinese goods are not so cheap - you pay more than the price on the goods for them - we now pay more to
    the Chinese in Interest than our defence budget. There has to be a better way of running these things :
    Step 1) - Taking China to the WTO for an unfair uni-trade policy and fining them Trillions
    Step 2) Use NEFS - Net Export Financial Simulation

  • Comment number 9.

    So, GO is going to tax the banks that WE own....lol

    If these folk didn't exist, you couldn't make them up!

  • Comment number 10.

    I still think that levying a tax on the money that a bank 'creates' as a loan agreement is signed would be the best. Perhaps at a rate of 0.3% - the rate is unimportant initially but it generates important information for later. Oh and the tax is paid each and every time money is created and it is not refunded when the loan is repaid. If created money is undeclared than a rate of 10% would apply.

  • Comment number 11.

    Still not there

  • Comment number 12.

    I can tell you exactly how it'll affect mortgages supported by wholesale funding - mortgage rate spreads over funding rates will merely increase to take account of the extra cost paid out. When it comes to taxes and fines etc the customer always picks up the tab.

  • Comment number 13.

    Sometimes the reference "investors did not like this" or "investors did not like that" seems to me utterly meaningless. These phrases normally implicate stockmarket index behavour on the day. What kind of investment strategy is this which goes up and down in mood every hour of the week, every announcement, every media blip, every boardroom scandal, etc.? I am pretty convinced that the current stockmarket system is a drag for ecomony, a horrible relict in social terms, and must be overhauled completely. This is simply a playground for short-term speculators who keep shaving off funds from your and my pension every transaction every millisecond of the working day. The 'financial crisis' money has never vanished, it has precipitated in the dealers' pockets. As always, the public picks up the bill to entertain these chaps and their good friends in power.

  • Comment number 14.

    Morning Robert,
    as previous posters have pointed out, in the case of LLoyds and RBS, they are largely owned by the state so a levy on these banks is meaningless.
    I must have been asleep during Mr Osborne's address because I missed the point about how we are to be protected from the "too big to fail" syndrome.
    Surely, too big to fail is just too big?
    It is almost two years since the taxpayers were held to ransom by the banks and NOTHING has changed- marvellous!

    p.s. only one of the Troika has a horse!

  • Comment number 15.

    I note that not only does Obama wish for a more serious levy on banks, he is unhappy with much of the austerity package that Europe (collectively) has mustered together. No prizes for guessing how Osborne rated then.

    Has it not dawned on those whose life is wrapped in treasury notes (of all kinds but mostly those with legible writing on) that people must buy goods and services from suppliers, who must buy goods, parts, materials, resources etc from suppliers, who must buy.... and so the chain continues. At the ends of that chain two someones need credit. So don't you prime both ends so that all those in the middle are sustained from both ends?

    Or do we just need banks to mess the whole process up - at their whim? Just make 'em all very small; that way we would all have an infinite choice about mattresses in which to stuff our cash.

    Or did a new form of "credit purchase agreement" enter just before the Great Collapse?

  • Comment number 16.

    As I understand it, UK banks are unable to reclaim or offset most of the VAT that they pay to their suppliers. This being the case, is it not likely that the banks will be clobbered more by the rise in VAT than by the bank levy?

  • Comment number 17.

    The bankers cost this country thousands of billions in bailouts and lost income for the trashed economy.

    The 'pay back' is to be single digit billions.

    Public services are to experience 25% loss, not 0.04%

    Predictably, when the Bertie Wooster talks about 'pain' he really means pain for ordinary people - not the bloated spivs who created the problem and pay-roll the tories.

  • Comment number 18.

    Can anyone explain to me why, after giving the banks almost 1 trillion pounds to "rescue" them we are now hunting around trying to save a million here, half a million there in order to keep the country afloat?

    Why can't we ask for some of it back. After all, the bankers seem to be doing very nicely indeed if the record bonuses are anything to go be so why are we cutting services to the bone in order to pay back the deficit which is under 10% of what we gave the city fatcats. A levy of 2 and a bit billion is just a drop in the ocean compared to the profits these people are making.

    Obviously I know nothing about the world of high finance but it seems to me that the banks should be asked to start paying us back at a more reasonable rate.

    Also, when policy decisions seem to be made on the basis of how they will affect the financial markets rather than the effect on the population of this country are we not relying too heavily on the financial (gambling) sector?

    Finally, a lot of these policies seem to be being made on the basis that not doing them would affect our ability to borrow. Surely when you owe so much money that a quarter of our country's income is going to service the debt the obvious answer would be to STOP borrowing. If I have personal debts that I struggle to service I would be considered by all to be extremely foolish to go on and increase those debts rather than paying them off.

  • Comment number 19.

    Having watched the Channel 4 programme the other night it is clear that the banking system has not changed its ways since the credit crunch. Huge risks are still being taken and the risk of another collapse is almost inevitable. The next time there will simply not be any bailout, as Governments, in simplistic terms, are still struggling with paying the last one. And yet the bankers seem to be completely ignorant of the chaos they have created. Its clear the monetary system is simply no longer fit for purpose, and the bank levy is simply a very small plaster on a broken leg. I have little confidence that the government will have the courage or inclination to make the necessary changes.

  • Comment number 20.

    6. Cassandra said:

    "Lets be absolutely clear to a very large extent the problems with our public finances are the result (directly or indirectly) of bailing out the banks."

    No, the problems with our public finances are due to the public sector being too large a slice of the economy. The public sector was funded by an unsustainable housing and debt boom this had to end eventually. The credit crunch was a symptom of the problem not the cause.

    Don't get me wrong, I'm not defending the banks, they operated on a unrealistic business model and this needs to be addressed by making them retain more capital (something which the proposed tax might do) but the bloated size of the public sector is a seperate problem.


    By the by anybody who imagines the above will be a painless process, had better think again, large sections of the population have been used to living thier lives on a similar model once it becomes impossible for people to roll over thier debts things could get sticky.

    The cynic in me notes that holdings of government bonds will not be taxed is this a way to drive done government bond rates by stimulating demand?

  • Comment number 21.

    The elephant in the room is the UK property market.

    The UK is in its current state for allowing property prices to overheat in the ten years to 2008. The massive public deficit, as it stands, is firstly as a result of bailing out the banks, who, awash with notional money at the time, not only gambled unsuccessfully with savers funds, but gave it to property sellers, re-mortgagees, the banks’ shareholders and the banks’ employees in the form of massive salaries and bonuses.

    Secondly the public deficit exists as a result of the government basing public sector expenditure on a continuation of the growth experienced between 1997-2007.

    There is definitely a need to re-align public sector expenditure with the affordability of the country’s economy, but not to the extent put forward in the budget. The bulk of the required reduction in the public deficit must come from repayments by the banks.

    When the economy returns to a stable footing in 3-4 years, interest rates will rise in line with global rates, and as a result (coupled with continuing high unemployment, high personal debt, and the requirement for a significant deposit), house prices will fall. And, if you remember, this was the cause of the problem in the first place.

  • Comment number 22.

    Taxing the banks 'solves' nothing...

    They are too few banks. So these living wills will simply say, when the envelope is open - you have to bail us out! We must split the banks up (and stop them re-merging) unless we do this they will remain 'too big to fail'. 'Too big to fail' must be seen as the death sentence of all mega banks. Split all of the main banks up into at least ten banks each. Prevent them joining together to invest in the same projects with their former partners.

    The banks have, through the operation of the market and their ultra protected position, connived together to destroy the value of money. They have created far more money that there are assets for it to purchase, or that is needed to lubricate the wheels of commerce. This is the real problem - too much money in circulation causing the value of money to become almost nugatory. We cannot hope to genuinely 'recover' unless the price of money issue is addressed.

    [Note that interest rates are still one fifth of their previous lowest rate (in the last 350 years) - that is we are so bust that we are still dead men walking. The Banks, assisted by the Bank of England, have destroyed our money, by the simple unconstrained procedure of creating far too much of it. This is why it is worth nothing, with many savers getting as little as 0.01% interest. It is not freely available of street corners because of the extraordinary monopoly position of lenders. This is the real catastrophe - and it is not even being addressed! We must have (and return to) real competition for savers funds and real competition for lending. The Banks MUST be broken up.]

  • Comment number 23.

    #6 wrote "Lets be absolutely clear to a very large extent the problems with our public finances are the result (directly or indirectly) of bailing out the banks. "

    I only wish that was true. It is a line the Gordon Brown apologists keep trotting out, sadly the Lab govt own statistics show this to be wrong. Before the credit crunch spending as a %age of GDP was 44% tax about 37% of GDP. To put that in historical context, 44% of GDP is roughly what govts spend in a rescession not when we were supposedly in good times.

    I am not to saying Banks have not caused public finance problems. There are 2 types of problem - one off financing/guaranteeing of banks this stopped being added to public spending in mid 2009 (not the guarantee stopped merely that it had already been accounted for) and secondly the decline in taxes from the financial sector - but that is in effect to blame the banks for not making profits in bad times.

    I do think the budget missed a trick. I would have provided that any bank which relied on govt finance (from any country) could not make use of losses from 2007-9 to offset against profits. This would allow tax revenue to flow from the banks earlier, without this it will be many years before banks pay any corporation tax

  • Comment number 24.

    About time the banks were weaned off the money market as a source of longer-term borrowing. Once, buying or selling from the MM was an overnight thing. Now, banks borrow short-term on the MM to fund longer-term lending such as mortgages - a stupid idea if ever there was one as the moment the Money Market tightens, dries-up, whatever, then borrowing banks start to wobble.

    So good if Osborne is taxing this kind of transaction. It might prompt banks to think more about their depositors.

  • Comment number 25.

    This move on the banks by Osbourne is very light weight which proves the system remains faulty. Whilst I agree cost cutting was required in other sections of the UK, the banking sector sits in the gut of the UK like a bad stomach ache. It needs purging, yet the Politicians are afraid of the economic effects of squeezing the banks.

    The retail section of the banks stopped being banks along time ago. They became loan companies injecting funny money into the economy. I was employed briefly in a retail bank in 2004; the employees were heavily targeted to lend money. The sales staff were unscrupulous in their actions in order to meet their targets. It was a disgrace.

    Major reform is needed now - Osbourne's levy will not force the banks to chnage their ways.

  • Comment number 26.

    The last few comments have it right, it's governemet spending which got us in the mess not bailing out the banks, though that helped. The bailout left the government with assets - maybe they'll make a profit.
    "deposits from the likes of you and me - those oh-so-dependable retail deposits" Yes Robert, so why don't they pay a decent rate of interest? They charge enough for borrowing - no wonder they aren't worried about the bank tax because it's irrelevant.
    The risk arises as borrowers are seen as more important then depositors.

  • Comment number 27.

    Disappointing really. What is needed is a Glass-Steagall Act and the Chancellor should have said so and not left it to Vince Cable's commission.

    Investment banks should be restricted as to the amount of wonga they can pay out in bonuses, commissions, and other incentives. At the moment they pay out a massive 40% of income in this way. It must stop. They must be restricted to paying out no more than half of that.

    Loans to entrepreneurs, businesses and manufacturers amount to about 3% of all loans. They should be pushed to 12% and the loans to property owners and developers pushed down accordingly from the present 70% of loans.

    Finally, the bank tax (or levy) should have been at least .15% and not at the miserable rate provided in the budget.

    I fail to understand the need to push up CGT. The problem, apparently, is that various creatures in the financial services industry are taking shares and share options as part of their take home and calling it capital. They quickly convert these into cash but pay CGT and not income tax. The answer is simple. Define income to include "anything of an income nature" which would catch those people. Just think for a moment. If I spend my time buying and selling on e-Bay and make a good living out of it, why should I pay CGT and not income tax? Seemple tst!

  • Comment number 28.

    3. At 10:26pm on 22 Jun 2010, truths33k3r wrote:
    Is it me?
    ---------

    No, it's not you, but you're in the minority group of people with common sense.

    The majority group of people tries to rationalise the absurdity and ends up even more confused.

    The minority on the top is having a laugh watching the two group arguing.

  • Comment number 29.

    With regard to the axing of the Sheffield Forge grant and the current freezing of PFI projects, is it not possible to ensure that these capital investments contiune by being financed by the banks bailed out by the tax payers - this in effect would ensure continuation of employment in the construction & engineering sectors - who paid their taxes to support these financial institutions - surely it's payback time for all those made/in the process of redundancy now.

  • Comment number 30.

    23. At 10:07am on 23 Jun 2010, Justin150 wrote:
    'Before the credit crunch spending as a %age of GDP was 44%'

    This is not the case;

    http://www.ukpublicspending.co.uk/downchart_ukgs.php?year=2000_2010&view=1&expand=&units=p&fy=2010&chart=F0-total&bar=1&stack=1&size=l&color=c&title=UK Public Spending As Percent Of GDP

    Let's go back to the start of the Thatcher years (that seems a resonable historical context)

    Even after the 'credit crunch' the levels are around the average for the first Thatcher government. I seem to recall that they had some benefit from North Sea revenues?

    http://www.ukpublicspending.co.uk/downchart_ukgs.php?year=1980_2010&view=1&expand=&units=p&fy=2010&chart=F0-total&bar=1&stack=1&size=l&color=c&title=UK Public Spending As Percent Of GDP

  • Comment number 31.

    Predictable.

    Two point five billion a year. Whoopie s****.

    It only highlights the simple fact that the 'democratic' process has been corrupted to the point that justice, accountability and a fair society are impossible and completely unattainable under the current system.

    Only one thing to do when a structure is irredeemably damaged beyond repair. Tear it down and start again.

    Enjoy the football serfs. Sit still and watch the bouncy ball as they drain you dry.

  • Comment number 32.

    I would appreciate some more perspective on this..

    1. How does the levy proposed in the budget compare with the above investment made by taxpayers in bailing the banks (and bankers) out ?

    2. Everyone appears to think that this problem was caused by bankers and they should pay, not the entire public. Therefore, my Question - what % of the deficit was caused by the financial crisis ? As far as I can remember, the taxpayer money is the money invested in banks (which has appreciated already), Northern Bank guarantee cost and the money provided as funding by Bank of England.

    If (2) is zero in the sense that the money is showing positive returns, then the levy is all about future. Whereas if the amount is say GBP 30 bn, then the levy is too low - will take 15 yrs to recover!

  • Comment number 33.

    Poor old Barclays, the only UK bank that wasn't directly bailed out by the taxpayer and even managed to save Lehmans gets punished along with it's two delinquent cousins.

  • Comment number 34.

    32. At 2:42pm on 23 Jun 2010, roopeshk

    I understand your principle here, but I think it misses out part of the equation.

    If the taxpayer paid £Xbn direct to banks and provided £Ybn in free of charge guarantees to their failing 'businesses' that is only part of it.

    The total cost also needs to include the loss of national income caused by their behaviour - example all the productive businesses which went bust due to catastrophic reductions in trade and the same banks refusal to provide credit.

    £30bn is no where close to the total amount.

    But don't wait for Bertie Wooster to start taking serious money off these parasites - remember who is paying for the tory party and who holds Bertie's purse strings.

  • Comment number 35.

    Oh why oh why can't I be paid in coin of the realm and weekly?

    And it has to be said, this crowd wouldn't recognise fairness if it sat up and bit them on the arse!

  • Comment number 36.

    And where pray are the banks going to get the money from to pay this tax?

    Why from us of course!

    Where else are they going to get it?

    Meanwhile the banks will still get enough money from us to pay their stellar performers galactic bonuses.

  • Comment number 37.

    The Chancellor , I put Chancelot first --- typo but maybe should have left it} Has just been on TV. Spouted on abou Growth. There can be no more, Peak Oil, water, food, space--- all gone! Sorry, should have mentioned Water.
    The party is OVER!

    The previous ( current?) model is broken. We are not going snywhere.

    Put it on my gravestone. Toldyouitwould

  • Comment number 38.

    Postscript to #37

    FRB RIP


    +++++++++++

  • Comment number 39.

    Two comments on the points made above:

    1. It is the financial crash created by the banks which is largely responsible for the current deficit NOT the size of the public sector. See the links referred to above.

    2. The Institute of Fiscal Studies has now confirmed that it is the poor who are hit hardest by this budget.

    So the poorest are made to pay for the mistakes of the bakers. That is simply immoral.

    Shame on you Mr. Cameron and Mr. Clegg.

  • Comment number 40.

    30 Squarepeg

    re public spending as percentage of gdp

    Here are the OECD figs UK public spending totals for 2004 to 2008 (GBP millions) -

    516 794.0 553 391.0 584 512.0 617 037.0 684 996.0

    http://stats.oecd.org/Index.aspx?DataSetCode=SNA_TABLE11

    Quite meaty rises dont you think.

    Here is a link to trends in public expenditure -

    http://www.hm-treasury.gov.uk/d/pesa04_chapter03_190404.pdf

    The table 3.1 ends at 2005/6 at 41.9%, this appears to be higher than the data in your link.

    Here is a link about a report re public spending trends -

    http://www.guardian.co.uk/politics/2010/jun/17/public-spending-rise-national-income

    'The 2020 Public Services Trust – a "dead centre" commission that includes both Labour and Tory luminaries such as Blair's former policy guru Matthew Taylor and the Tory MP Stephen Dorrell – calls for a "system redesign" of government to head off a permanent fiscal crisis.'

    'Public spending as a percentage of GDP will rise to more than 63% of national income by 2030, a thinktank says, to meet the rising costs of ageing, an unexpected fertility boom, climate change and the price of replacing decrepit infrastructure.'

    You ask me somewhere else who owns debt, I'm more interested in who has the liability of paying for it. As debt servicing costs generally rise as debt rises all things being equal it seems reasonable to seek to manage debt. Part of that mix is surely to keep it under control.

    One thing I am sure of is that public services can be managed to meet needs more effectively than appears to date.

    With regard to long ago eg Thatcher. I havent trugged thru it all, and I have no intention of doing so, but I do know PPP and PFI and Utility privatisation were undertaken to get figures off the PSBR so it is, as usual, probably difficult to compare apples and pears.

    GDP has been reported as recently rising due to public spending ie borrowing. That would hint at problems.

    I dont see it makes any difference who is in number 10 the cuts will have to be made, the timescale may have varied but the cuts would still have come.

    You might also be interested in this link

    http://www.ibtimes.com/articles/20936/20100426/uk-public-spending-48of-gdp-cebr.htm

    ''Public expenditure in the North East of England is now 64% of GDP.

    Public spending in the North West, Yorkshire and Humberside, the West Midlands and in Scotland is around 55% of GDP.

    Meanwhile, public spending as a share of GDP in London remains low at 35%.

    For the UK as a whole public spending as a share of GDP has risen from 37.4% in 1998/99 to 48.4% in 2010/11.''

    Facts are not political are they. It all looks a bit of a problem to me but I'm just a simple guy. The regional figures are alarming. I suspect the financial sector being London based has a local effect. If the finacial sector diminishes, however much an outside chance that is I would expect problems. So by all means explain my concerns away. I am keen to know.


  • Comment number 41.

    Re #39 - it is the mistakes of the bankers I was referring to. I believe the bakers are generally pretty good guys who actually contribute something meaningful to society.

  • Comment number 42.

    Oh deary dear - yellow brick road @40 your ideological slip is showing. But your post is of course misleading.

    1. The baby boom generation certainly creates a long term issue in terms of government spending. But the answer to that is not necessarily reducing government action. I believe in Australia all those in full time employment have a pretty generous pension as a reult of legislation making it compulsory for all employers to contribute.

    2. You assume the only way to deal with a budget deficit is to cut government spending. It would also be possible to raise taxes. If it was done in an internationally co-ordinated way avoidance could also be made far more difficult. We could also prevent this constant pressure to underct other countries tax rates.

    3. I don't think even you could deny that the banking crisis and the bail out of the banks has had a dramatic negative impact on our public finances.

    4. Even if we were to accept everything you say surely not even you would advocate making the the poor pay more than the well off. And yet that is precisely what this budget does - see report of Institute of Financial Studies referred to above.

  • Comment number 43.

    Responding to couple of comments made above

    1. It is popular to blame the bankers, but it has been discussed that the failures are fairly spread out, including the regulatory bodies of various kinds - Mervyn King as an example.

    2. The bankers did not cause the deficit to reach the levels that it did, we have Gordon to blame for that. And guess who picks up the tab for Gordon's failures..

    3. In terms of banks having to pay and the customers ultimately picking up the tab, this is incorrect and has to be challenged.
    - The supernormal profits have already been picked by (OFT?), which is trying to understand why such banks charge the money that they do, therefore we have regulators stepping up (as they should) to protect customers at various levels.
    - Banks also pay too much (??) to their investment bankers, which again the government should look at..
    Therefore it is possible that the banks pay, the bankers compensation decrease and banks profits/ customer impact is zero.

  • Comment number 44.

    Run the "Road to Ruin" option past me again please

  • Comment number 45.

    Remind me again? What Agency allowed the Banks to enjoy the freedom to (1) act as they did and (2) continue unfettered? Oh yes, it was the various Governments. I am minded of the old adage in relation to setting targets and incentives e.g. to Sales people..... you rarely end up getting what you set out to achieve. And, I fear, the Government is carrying on in much the same way, setting targets/directives/taxes which will have unintended consequences.
    Various Governments allowed Bank Execs to make huge sums through extending risk, and we are now in a mess. And this was pointed out by many people over the past years, so far from being wise after the event. Consequently, I would just like to stake my claim for pointing out that yet more Government action is almost certainly going to continue their illustrious track record.

  • Comment number 46.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 47.

    This is appropriate but should be applied more widely. Every employee of a bank should pay a tiered payment:

    + earning over £50k but less than £80k pays an additional 5% in tax
    + earning over £80k but less than £120k pays an additional 10% in tax
    + earning over £120k but less than £250k pays an additional 25% in tax
    + earnings over £250k pay an additional 40% in tax.

    Dont give me the arguement these people at the top are worth the money they are not. The majority are characterised by gread and arrogance in equal measure. For the highest paid earning over £250k it should apply for 5yrs and in all cases extend to pensioners who became liable to draw their pensions from 2008. In this way we could also catch "Fred the shred".

  • Comment number 48.

    42 Cassandra:

    ''Oh deary dear - yellow brick road @40 your ideological slip is showing. But your post is of course misleading.''

    Thanx for the tip, I'll ask Rita about how to dress. But please explain, other than an off hand 'is of course misleading'.

    ''1. The baby boom generation certainly creates a long term issue in terms of government spending. But the answer to that is not necessarily reducing government action. I believe in Australia all those in full time employment have a pretty generous pension as a reult of legislation making it compulsory for all employers to contribute.''

    I understand Oz has missed, so far the recession as we know it. Oz also has mineral resources in demand. And a very healthy fishery industry selling to Asia, prawns and whatnot.

    ''2. You assume the only way to deal with a budget deficit is to cut government spending. It would also be possible to raise taxes. If it was done in an internationally co-ordinated way avoidance could also be made far more difficult. We could also prevent this constant pressure to underct other countries tax rates.''

    I'm not assuming anything. But I have to say that cuts look part of the mix. But explain away, I'm interested. Your suggesting the swedish model I presume. I would like to meet her.

    ''3. I don't think even you could deny that the banking crisis and the bail out of the banks has had a dramatic negative impact on our public finances.''

    Chicken and egg I think and a lack of governance, as shown de facto by the introduction of new rules before the GE. I do know we have a problem and I do know who got us here.

    ''4. Even if we were to accept everything you say surely not even you would advocate making the the poor pay more than the well off. And yet that is precisely what this budget does - see report of Institute of Financial Studies referred to above.''

    I have never proposed the poor pay more. I would propose we have less poor by getting an economy working. I would be interested in knowing if you have ever been poor. I have as it happens so please do not talk down to me, Ive got the tee shirt. The problem is despite record funding going in stop the problem we as a country still have over 20 percent of kids being brought up in poverty and it is rising.

    But as I have said - facts are not politcal are they, and the facts are UK public sector spending is as given in the links. Surely you do not think 63 percent, which is the estimated trend destination, is sustainable - thats even more than the Swedes can deal with. So let me know how you would deal with it. Meanwhile I'm with Lord Desia - stop subsidising the middle class. And nobble the rich if need be. So exactly what party am I in. I'm not in any party other than the Beach Party. But I reckon whatever way you go we are all going to pay. And bills dont go away if you wait.

    PS You do know that Cassandra and the other visionaries where supposed to gain access to the spirits by entering caves located under the temple where fumes resided - a mixture of toxicity and oxygen depletion, well thats the theory. I can't remember the particular gas off hand, but the greeks believe they have found the location and identifed the gas. But be careful down there if that is where you are : )

  • Comment number 49.

    I'm afraid I'm one of the heretics who point to the impact of the debt mountain and abandoning common sense in the search for bigger margins as being the prime cause in this. We're 30 years into the experiment and the Ponzi scheme has now run out of options because the debts run up are now threatening to take out governments because the taxpayer is now responsible for them.

    So, erm, at £2.5 billion a year, how long is it before the banks repay the 30 years of money they've screwed out of us?

    Should have let them go to the wall, guaranteed the depositors and started again. Looks like that would have been the cheaper option as it seems like, now the debt has shifted to the taxpayer, the banks and bonds markets want to play some more.

    Any news on tightened regulation for the city on some of its more dubious practices which have contributed to this mess? By tightened, I guess I mean 'some'. By 'dubious practices', I mean pretty much anything which is blatant gambling but which has the direct or indirect intention of leaving the taxpayer to cover any loss.

  • Comment number 50.

    Governmental economics: tax the people, give money to the banks, the banks pay small tax and receive absolution for all past wrong doings, banks invest taxpayer money in growning Asain economies and use profits to pay small tax which is also less than the interest they are charging the government to borrow back the monies provided by the taxpayers. Cuts in services are needed because the government can not afford the interest being charged by the banks to borrow the money that the government has given them.
    Someone with an elementary education may view this as not making any sense, but those with higher educations have the ability to pretend that it does.

  • Comment number 51.

    Am I missing something here? I thought that Barclays did not go cap in hand to the government/public for bale-out money, but instead was privately financed when things went pear-shaped. So why, then, are they being penalised now and why are they singled out by you, Robert?

  • Comment number 52.

    @ 51. At 5:39pm on 24 Jun 2010, tony mayes wrote:

    > I thought that Barclays did not go cap in hand to
    > the government/public for bale-out money, but instead
    > was privately financed when things went pear-shaped.

    Think "Next time? There'll be no next time"!

    > So why, then, are they being penalised now ... ?

    Think "moral hazard". They can risk it, and get belted
    by the pubic, or they can take behave themselves and
    we'll cut them some slack. We don't care about what
    they did. It's what they do now that matters. Like all
    business (think BP), nowadays they have to serve us
    well, or pay. It's thier call whether they show us
    the acceptable or unacceptable face of capitalism.

  • Comment number 53.

    #14 >>p.s. only one of the Troika has a horse!

    One horse pulling three troikas ?? How barbaric !! no wonder the economy is in such a mess !! Normal troikas have *THREE HORSES* pulling *ONE* troika !! :-)

  • Comment number 54.

    #17 >>The bankers cost this country thousands of billions in bailouts and lost income for the trashed economy.

    FYI, it wasn't the banks that caused the losses; it was the *previous* government who bailed them out for whatever political reason(s) !! There is *NO* sound economic or market reason to bail them out !!

    They should have been allowed to fail and let other, sounder banks pick up their market share !! Then, none of this "levy business" would have been necessary and we wouldn't have such a large national debt !!

  • Comment number 55.

    A rather interesting question which this levy raises is the additional liability that Lloyds will pick up as a result of its acquisition of HBOS. Given that there is a forthcoming action against Lloyds management and the government for concealing the true extent of HBOS financial troubles during the takeover it will, presumably, be part of that action to recover the part of the levy attributable to the acquisition if the case succeeds in court. I await with interest the order of the court to disclose all minutes and correspondence (from both Lloyds and the government) relating to these issues. If I were the coalition I would go for pre-emptive full disclosure on this case and treat it as an exposure of Darling and Balls.

  • Comment number 56.

    Not On My Watch.

    The mis-selling called retail high income multiple mortgages.
    A bottle lining litigator awaits
    A million free punts at £50K.

    A million mortgage mis-selling dreams
    Draw silence speaking stirling to a savvy mortgagor.

    For bottle lining
    A lazy post, bombastic bonus
    Family friendly far far away.

    LOL

  • Comment number 57.

    #48 >>PS You do know that Cassandra and the other visionaries where supposed to gain access to the spirits by entering caves located under the temple where fumes resided - a mixture of toxicity and oxygen depletion, well thats the theory. I can't remember the particular gas off hand, but the greeks believe they have found the location and identifed the gas. But be careful down there if that is where you are : )

    I believe you are thinking of the Oracles of Delphi, whose cave(s) was/were identified and will probably play an even greater part for Greek tourism, now that their economy is in such dire straits !! Doubtless, long lines will snake their way to the Oracle(s) to discover ways of avoiding the new taxes !!

  • Comment number 58.

    #51 >> Am I missing something here? I thought that Barclays did not go cap in hand to the government/public for bale-out money, but instead was privately financed when things went pear-shaped. So why, then, are they being penalised now and why are they singled out by you, Robert?

    I believe they (Barclays) eventually took the Queen's shilling in the form of a guarantee for their dodgy assets. Only HSBC, of the Big Four, avoided taking the Queen's shilling. And, just to prove a point, they have *already* moved their HQ to Hong Kong, possibly to avoid onerous British taxes on the vastly greater international earnings !!

  • Comment number 59.

    Error in this Article:

    Article refers to rate rise in one year time as "...0.02% rising to 0.35% ...", this is incorrect. It rises to 0.035% and NOT 0.35% which would be even higher than 0.15% that is proposed by US.

    Just so it doesn't mislead people reading this article.

  • Comment number 60.

    " 6. At 11:00pm on 22 Jun 2010, Cassandra wrote:
    Lets be absolutely clear to a very large extent the problems with our public finances are the result (directly or indirectly) of bailing out the banks. "
    You are just so Wrong
    and if you're looking to point the finger
    Gordon Brown
    Longest serving post WWII Chancellor
    defacto Head of regulation for the past decade "Mr Prudence"
    The banking crisis just hightlighted how many of the UK's monthly bills Gordon was paying for using the Uk Credit card.
    Prudence my a...



  • Comment number 61.

    While bashing the banks is all fun and good the minor point the previous government was spending £4 for every £3 raised in tax is the main issue. At the end of the day the government (read taxpayers) will get their money back from the bank bailouts and provided they don't sell to early could make a nice profit for the country, the problem of the public sector being to large and costing us all more seems to be lost on many people.

    If you ran your own personal finances the way the government was spending you would be in your overdraft, all your credit cards at their limits while trying to pay your mortgage and a car loan. End of the day the government spent the money so we all have to pay for it, there's no point in blaming the banks for the black hole in public spending.

  • Comment number 62.

    Yellow Brick Road you mentioned loans at double digit rates. Are you saying you are apying Base Rate (0.5%) plus at least another 9.5% ?

    Presumably your business must be in dire straights to attract such a penal rate ?

  • Comment number 63.

    so. we, the innocent parties in all this, and who have already bailed out the banks, have to pay 20% VAT whilst the banks, who mostly caused this mess, get off scot-free, only a few having to pay anything, and that being way less than 1%!!

    surely we should not be faced with the VAT increase and instead ALL banks should have to match what VAT we do pay.

 

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