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How to super-tax the real culprits

Robert Peston | 16:27 UK time, Tuesday, 15 December 2009

The chancellor said in his pre-Budget report speech that his motive for levying a one-off super-tax on banks that pay big bonuses was to deter them paying out precious resources to employees and encourage them instead to "rebuild their financial strength and increase their lending".

Alistair DarlingTo be clear, if it was his only aim to strengthen banks in this way then probably the easiest route would have been to oblige banks to pay 100% of their bonuses in shares or equity capital, rather than cash (which, as it happens, is Tory policy).

So presumably at least part of Mr Darling's aim was to raise some wonga for the public purse and spank the banks for having to be bailed out by all of us.

Even so, it really is odd that the draft legislation for the new tax explicitly says that it is payable by all sorts of financial institutions which are not what most of us would think of as banks - such as stockbrokers and interdealer brokers (see my note of yesterday).

And I am unclear whether this oddity is deliberate or the undesirable consequence of drafting unprecedented new tax law in a great rush.

That said, changing just one word in the draft legislation would probably remove most of the apparent anomalies.

The point is that Clause 19 section 1c defines a "UK resident bank" liable to the tax as a company that either takes deposits "or" carries on dealing in investments as an agent or principal.

Which is why non-deposit takers such as Tullett and assorted other brokers are liable to the super-tax - although on the face of it they are not in the category of banks which the chancellor wants to discourage from paying bonuses (unlike many of the giant banks, they did not indulge in the reckless behaviour that mullered themselves and the economy).

But these putative innocents would be protected from the tax if the "or" was changed to an "and".

This one word change would mean that only deposit-takers which also operate as investment banks and financial dealers would pay the punitive tax.

The likes of Barclays and RBS would pay the special levy, but Tullett and many other smaller monoline financial brokers and agents - which have neither been offered nor have taken succour from taxpayers - would be untouched.

So why is there an "or" instead of an "and"? Why is the universe of super-tax payers broader than deposit-takers which are also dealers in investments?

I presume that there is some firm or category of firm that the Treasury and HMRC want to tax which would otherwise go untaxed.

But who would dodge the bullet if the definition of the relevant firms were narrowed?

I wondered whether the Treasury feared that pure investment banks such as Goldman Sachs would be excluded.

But if the "or" became an "and", Goldman would still have to cough up, because it is an authorised deposit taker in the UK.

I have to say that I am a bit stumped.

For a moment, I had pondered whether the Treasury was using the draft legislation to feel its way towards a formula for a permanent broader financial transaction tax that it would then endeavour to sell to the other leading economies of the G20.

But its work on that is separate (I will take a look at the Treasury's ideas for such a permanent financial industry tax or for a financial system quasi insurance levy in a later note).

I think therefore the best one can say is that the super-tax is a slightly amorphous organism which is still evolving - and probably needs to find its final shape fairly sharpish, before too many brokers and bankers have relocated to low-tax Zug.

PS. Just in case any of you have noticed the remarks made today by Royal Bank of Scotland's chairman Sir Philip Hampton that "there have been no threatened mass resignations of the board", his statement is completely consistent with what I wrote last week (see "RBS board to quit if chancellor vetoes £1.5bn in bonuses").

Comments

  • Comment number 1.

    Mr Peston wrote: More on super-taxing bankers.

    Why don't we just start a national state bank instead.

    Given all that has happened, if ever there was a business that needed to be state run, it's basic banking and finance.

    In fact we've got one haven't we, why don't we just develop the RBS/Nat West into a state bank.

  • Comment number 2.

    So Robert would that definition include Mutual Building Societies as they are

    "a company that either takes deposits "or" carries on dealing in investments as an agent or principal."

    Or maybe the Post Office or national Savings?

  • Comment number 3.

    As well as changing the "or" to "and", you'd also have to remove the "either" to make the ammended sentence read correctly.

  • Comment number 4.

    It's clearly just a populist spank-the-bankers tax to get a bit more revenue to help dig the treasury out of its rather large hole. (I suspect there's also some good old-fashioned old Labour class and wealth hatred involved too). No one can object to those bailed out having to cut back or eliminate their bonuses - but some good people at well-run companies are going to be penalised by this. Switzerland anyone?

  • Comment number 5.

    Well, our ever-so-clever banker overlords are probably already devising many ways around this new tax.
    How about moving staff to off-shore 'management' or 'consultancy' companies where staff can be paid whatever bonuses they like, while still doing the same jobs they were doing previously?
    Just move staff to a company not covered by the regulations and they are home free.


  • Comment number 6.

    #1 Dempster

    We used to have one, National Giro was its name, sold to the Alliance and Leicester, now owned by the Spanish giant Santander.

  • Comment number 7.

    The relocation issue is somewhat double-edged. As financial consumers and businesses who use capital, we want banks to compete hard and make lower profits because that leaves more money for us.

    But as taxpayers, we want banks to make lots of profits in foreign markets because that transfers some of their money to us through corporation and income tax.

    In this regard, the solutions I proposed last week are probably still beneficial but it's less clear. Perhaps the Treasury is still working through these issues for itself and figuring out whether an efficient banking market is in its interest or not.

    http://www.knowingandmaking.com/2009/12/bankers-bonuses-two-solutions.html

  • Comment number 8.

    I hope that those who are considering a move to Switzerland will actually pay a visit first...

  • Comment number 9.

    6. At 5:29pm on 15 Dec 2009, BobRocket wrote:
    #1 Dempster
    'We used to have one, National Giro was its name, sold to the Alliance and Leicester, now owned by the Spanish giant Santander'

    Well I reckon we need another one. And some rules regarding how much can be borrowed e.g. three times your gross annual income and such like.



  • Comment number 10.

    Instead of taxing the bankers they should try loaning money to those who create wealth and jobs in the country. Then they could have a bonus on those results. Then tax them..simplistic but works for me.
    Its all about the carrot and stick

  • Comment number 11.

    All this banking is getting a bit too obsessive: quite unhealthy!

    Can we talk about the 1700 steel workers being laid off at Teeside?

    What sort of bonus have they got to look forward to?

    What sort of fairness are they experiencing?

    Are there opportunities for steel-workers in Switzerland?

    Are we all in this together?

    Not on your nellie, we ain't.

  • Comment number 12.

    I really like the idea of a national bank, and one that runs as a trust, a bit like the BBC, at a distance from politicians, but with a clearly worded remit like " to sustainably increase the financial wellbeing of all our customers", rather than "to fleece you til you bleed".
    I mention the Beeb because I particularly enjoyed how much they got up Murdochs' nose. A thorn in the Ferengi banks side would be most welcome.


    I got quite excited about this a while ago, then I remembered that Building societies also run banks, yet the level of service and fees that they charge are similiar to the banks run by the Ferengi.

    Perhaps the unfortunate simple truth is that there isn't enough money in retail banking to offer a service to the customer...

    Or perhaps there is if you add the ability to offer pensions and other financial products, that the BS are not allowed to deal in?

    Any experts out there?

  • Comment number 13.

    Perhaps I am being too cynical but Robert Peston states in his PS that "remarks made today by {RBS} chairman Sir Philip Hampton" included " there have been no threatened mass resignations of the board". It would clarify matters if Sir Philip would remove the word "mass" and then confirm "there have been no threatened resignations from the board".

  • Comment number 14.

    #11 Agree totally, the debate especially the BBC needs to be widened past bankers, the real economy is on it's knees, and I speak from the standpoint of someone who speaks to "real" business's everyday. The bankers may be an obsession to parts of the public but believe me I feel the first quarter 2010 will be carnage as far as redundancies/insolvencies go...

  • Comment number 15.

    Why narrow the target? Why not widen it? Keep it simple: super-tax all bonuses exceeding some large amount.

    As for a national bank, we almost had one called the Post Office Savings Bank. It's a concept that, in a much evolved form, we should return to. Especially if we can have a branch in every village! They could even extend their service by selling stamps and accepting post. I guess the idea is just impossible to organise in reality.

  • Comment number 16.

    Robert,

    have you not actually read the legislation yet, or would that get in the way of your story?

    Its an incredibly simple thing to get around

    The entire point presumably is to ensure no damage to the banking sector whilst at the same time the rather less bright journalists reports it as if its the end of the world so the baying mob is sated.

    I thought you where supposed to be a really switched on business correspondent?

    0/10 I am afraid on this one.

  • Comment number 17.

    Robert, is it acceptable to use your public platform to defend your former colleagues and their remuneration plans? As has been pointed out yesterday, TP clearly benefit from the increased (bogus) liquidity that the government has pumped in. The bill for this is yet to be settled and a modest contribution from TP is perhaps the least they can do. Would you care to use your contacts at TP to provide a worked example of exactly how a financial service company operates its bonus and the effects of the tax on them? Maybe you could even go back, say for a nice lunch, in April to report on how much they have actually paid?

  • Comment number 18.

    Are the banks and finanical institutions playing catch me if you can? whilst the Government has its head somewhere where dreams are made of

  • Comment number 19.

    # 11 & 14, Also agree with you, it would be interesting if someone could report on businesses in the High Streets, Industrial Estates, leisure industry, local construction sites around the country, SME companies do matter to the country.

  • Comment number 20.

    > So why is there an "or" instead of an "and"? Why is
    > the universe of super-tax payers broader than deposit-takers
    > which are also dealers in investments?

    So that we can get at a bunch of toffs who make a good living
    doing easy work that anybody can do for a tenth of the price.
    That's why.

  • Comment number 21.

    Bailing out the banks seemed right at the time, but if we found ourselves in the same situation again I'd let them go bust. We've got to rebuild the system in a fairer, more sustainable way and the only way we can achieve that is to rebuild from scratch. Reflating the old burst balloon after patching it up with wet newspaper was a seriously bad idea on Darlings part...

  • Comment number 22.

    12. At 6:00pm on 15 Dec 2009, Crookwood

    A national banking service (NBS) would allow the removal of tax payer guarantees which all banks now enjoy, but is not admitted to.

    It would prevent a systemic collapse of banking in general, predominantly because, if the bank fails, then you lose whatever money you have in it.

    In short anyone with any sense, companies included would not risk money they could not afford to lose with a private bank.

    The catch for the investment banking industry, is a significant amount of money that they gamble with would evaporate over night.

    The state bank wouldn’t allow its money to gambled with, so that would tend to limit the amount of gambling going on.

    This country is not massively dependent on the financial sector despite what others would have us believe, in fact with a state bank and sufficient teller points, I suspect it may function rather well.

  • Comment number 23.

    #19 DBB59

    Whether we like it or not banking is the business.
    It is where money comes from. Not wealth but money. And we cannot do without either.
    Bankers have but one task in life. Provide that money. They know they have got us by the short and curlies. Even now after we have bailed them out they still know that they are indispensable. In fact now that they have been bailed out they are certain they are indispensable. No moral hazard. They are home free.

    All we can do is try and wend our way within their system.
    The beauty of the system, for them, is that they get to enjoy any improvements we make to the infrastructure. Make no mistake though it is all theirs.

  • Comment number 24.

    19. At 7:12pm on 15 Dec 2009, DBB59 wrote:
    'it would be interesting if someone could report on businesses in the High Streets, Industrial Estates, leisure industry, local construction sites around the country, SME companies do matter to the country'

    I'll report on it because I'm in the private sector, from what I and some of my personal friends in the private sector are experiencing, times are tough, and there is no particular reason to think things are going to change in the near future.

  • Comment number 25.

    19. At 7:12pm on 15 Dec 2009, DBB59 wrote:
    'it would be interesting if someone could report on businesses in the High Streets, Industrial Estates, leisure industry, local construction sites around the country, SME companies do matter to the country'
    24. At 7:58pm on 15 Dec 2009, Dempster wrote:
    I'll report on it because I'm in the private sector, from what I and some of my personal friends in the private sector are experiencing, times are tough, and there is no particular reason to think things are going to change in the near future.

    I mean't to say it would be interesting if someone from business section of the BBC could report from around the country to give a balanced picture of how the SME sector is faring. Our small business and the companies we deal with have likewise found it tough.

  • Comment number 26.

    #15 "Why narrow the target? Why not widen it? Keep it simple: super-tax all bonuses exceeding some large amount."

    Because punitive taxation rates result in an overall net reduction in tax collected as the brightest and highest earning people move to a less hostile country, or the savings in tax justify creation of complex avoidance vehicles. So rather than 40% of £lots you end up with 50+% of nothing.

    If the objective is simply "punishment" due to wealth envy on the other hand...

  • Comment number 27.

    Back to investment banks.

    I've a scientist friend who is currently out of work. The job centre where she claims benefit to tide her over have informed her she she will be applying for a job as a data analyst for an investment bank. And if she doesn't apply she'll lose her benefits.

    Does that mean the investment bank employees have already left, or does it mean no one wants to work for them to avoid further blame?

    Will they try to pay her a much lower wage given that she hasn't a clue what a competitive salary for that job is?

    Apart from working with DNA, she's been studying animal behaviour, so perhaps there is a research grant to be applied for in this and she can generate some research papers!

  • Comment number 28.

    26. At 8:21pm on 15 Dec 2009, Velentr

    Aren't the Scandanavians doing OK?

  • Comment number 29.

    Robert
    Going on and on about the same point is normally considered bad etiquette. Just face it - the public do not like your "socially useless friends" who are just skimming off a percentage on all of the deals without adding value to the economy as a whole. Hence the view that they should be highly taxed and the calls for a traditional bank that takes in savings and lends out loans - nothing more.
    To say that intermediaries such as Tullett are not responsible for the crash is plain wrong - they pedalled the sort of financial products that they and others did not fully understand the risk of around and around, taking a cut each time, until eventually the music stopped. That they never took the risk themselves is irrelevant. Perhaps you feel that the credit rating agencies are similarly innocent?

  • Comment number 30.

    #27 "Does that mean the investment bank employees have already left"

    No, there were lots of redundancies in 2007/8 as the recession started. Now the recession is ending, they need people back.

  • Comment number 31.

  • Comment number 32.

    I haven’t posted for a while on behalf of the United Peoples Front hereinafter referred to as the UPF.

    However a fiscal plan has been drawn up and as a consequence thereof I detail it below:

    A state bank would be formed from the ashes of the now owned RBS / Nat West and as such would provide a deposit and lending base for both individuals and companies.
    It would have an absolute guarantee for depositor’s money.

    The Lending Criteria 2010 Act would be enacted to provide a limit on credit to individuals and facilitate a repossession and rent back arrangement to families and individuals that fall foul of their personal financial arrangements.

    Government expenditure over a five year period would be brought in line with tax receipts.

    To default on a ‘gilt’ would be wrong, because they are held by investors, and they may be in people’s pension funds. In addition to honour one’s debts as best as one can is right.

    As a consequence The Bank of England would therefore be instructed to purchase all outstanding gilts over a five year period via quantitative easing. (I know it’s going to hit gilt holders, but then it’s going to hit the average Joe & Jane as well).

    At the end of which the government will not run on debt, people will equally be able to rely on a state bank, and god willing there will be no more catastrophic busts.

    So who are the losers then?

    Well investment banking is going to take a big hit and sterling will fall in value, although I suspect not dramatically, because a sensible country that does not run on debt, is likely to yield a stable currency.

    The plain truth is that if the state (which is us) does not control ‘money’, the state (which is us) can only ever be at the mercy of those who do.

  • Comment number 33.

    To Velentr @26

    I agree that super taxes generally lead to collecting less tax, but we're not suggesting it for regular salaries. Moreover, if we don't like high bonuses.....

    In fact, I would make the tax payable by the employer rather than the employee. I realise that it makes no difference to the bottom line. But it might have a psychological impact and would look good included in the annual report.

    My real point was that super bonuses are out of order for anyone, not just financial traders. The case of the Shell bosses, who chose to pay themselves a super bonus although they failed to reach their targets is another atrocious example.

    An engineer who does something brilliant to make his company millions receives a couple of thousand pounds bonus, after all it's his job. A trader or director of a large company has a good year (probably as much by luck as judgement) and has a bonus of millions. I don't know if I should laugh or cry.

    Life isn't fair. However, where the government is involved, we have the right to expect an attempt to make it just.

  • Comment number 34.

    33. At 9:25pm on 15 Dec 2009, WolfiePeters wrote:
    An engineer who does something brilliant to make his company millions receives a couple of thousand pounds bonus, after all it's his job. A trader or director of a large company has a good year (probably as much by luck as judgement) and has a bonus of millions. I don't know if I should laugh or cry.


    Agree with your points. However, anyone who receives a 'significant' bonus, it seems to me, is possibly part of a network not so different from a union. And what they seem to do to earn the bonuses is to employ magnificent marketing people and techniques - no different from a homeopath convincing people that plain old water is just the thing to make them to help their health.

    I'd like to see the work published yesterday here (http://news.bbc.co.uk/1/hi/business/8410489.stm%29 submitted for peer review in an academic journal, and of course further research in this area.

  • Comment number 35.

    34. At 9:47pm on 15 Dec 2009, copperDolomite

    It's the control of money, which I have issue with.
    And more particularly those who suffer by their control of it.


  • Comment number 36.


    Please would you do a report in which you tell us just how the Economy got into such a mess and how bankers make their vast profits?

    Banks don't make anything, so where does it all come from?

    I suggest that they are very good at extortion, and the obscene bonuses are paid to their employees who are the best at doing just that -- extorting it from the rest of the population, who, let's face it, is just a mass of ignorant, trusting sheep.

    Money is actually nothing more than someone else's debt -- doesn't it say that on every banknote -- "promise to pay the bearer etc", and the whole world economy is no more than a giant "Ponzi" scheme which, if China and the Arabs don't help, will soon blow up in our faces – the fuse has been lit already,

    Why do we have it "in for" the recipients of the obscene bonuses? They are no greedier than most people -- they merely happen to be good at doing their master's bidding, and extorting vast payments from them for doing it.

    My dog is very greedy, and is always looking for more – surely a good trait – I use its’ greed to help train it. If I give it tit-bits other than as a reward for a specific action, my dog gets fat, and anarchy reigns. The fat and anarchy are MY fault, NOT the dog’s.

    Doctors, most CEOs, and many public “servants” are grossly overpaid (my opinion). But I don’t blame them – I blame the weak, unaccountable wimps who were incapable of striking a tough deal – after all they don’t have to personally foot the bill – they are “all-right-Jack”

    Why don't we get at those who do the bidding, or, more relevant, those who allowed such a flawed system to exist? Were our rulers economically illiterate, or did they deliberately want to perpetuate the "Ponzi"?

    If the latter, why? The next election?? Their pensions are safe

    If only the British population knew just how they were being fleeced





  • Comment number 37.

    35. At 9:59pm on 15 Dec 2009, Dempster wrote:

    It's the control of money, which I have issue with.
    And more particularly those who suffer by their control of it.


    And those who suffer from it are repeatedly told just how valuable those in control are. Seems they are not. What is more expensive in monetary terms to society, a banker or a single person on unemployment benefit?

  • Comment number 38.

    #34 copperDolomite

    I've just read that report 'A Bit Rich' from the New Economics Foundation, it is available as a pdf download so you will have to google for it.

    Makes for interesting reading, some good quotes and conclusions.
    Top bankers can take heart that they are only villains No. 3, top spot is for Tax Advisors to the superrich followed by Advertising Execs.

  • Comment number 39.

    37. At 10:49pm on 15 Dec 2009, copperDolomite
    Last post.
    I believe it is the business of men and women, to do that which is right by those who come after us, irrespective of wealth, politics, religion, skin colour and/or anything else for that matter.

    Who out there, living upon this rock (The Land of the Britain’s) wants a better future for those who come after us?

    I reckon that you CD, DA & WOTW likely fall into that category. It’s not very many though is it.

  • Comment number 40.

    Further to my #38

    There is another report on the New Economics Foundation website called 'The Cuts Won't Work'.

    They suggest that government sponsored infrastructure investment spending of £1bn during a recession would in fact only cost around £25million and create about 37,500 jobs paying average wage.

  • Comment number 41.

    #36. oap_john wrote:

    "I suggest that they(Bakners) are very good at extortion"

    Yes...

    But it isn't extortion if the law and regulations have been so constructed as to permit/encourage to act in this way!

    All the bankers did was to take advantage of the regulatory environment!

    PS Sack Mervyn King, the MPC, Hector Sants, Nick Macpherson and Gus O'Donnell! We paid them handsomely to regulate the banks and they failed.)

  • Comment number 42.

    'I presume that there is some firm or category of firm that the Treasury and HMRC want to tax which would otherwise go untaxed.'
    >>>>>>>>>>>>>>>>>>>>
    Exactly - what some of us had written on the previous 'Bonus Tax: Innocents Punished.'
    Contrary to what some bank related contributors had indicated that some contributors did not know that Tullet what not actually a bank - Deerrrrrrrgh!
    Let me see - Tullett are an intermediary that derive most of their trade and business income and 'profits' from advising banks!
    The issue for these kind of companies is that they can apply, in relative terms massive leverage/exponential risk in acting as the intermediary for moving massive amounts of cash/capital - remember Mr 'Nice Man' Soros around Black Wednesday - what kind of operation was he running when his negative agenda nearly crashed the UK economy? If this arrangement had been in place in the early 1990's the risk from a 'Black Wednesday' type trade could probably have been avoided as the profit element would not have been there for the trader - as it would have been heavily taxed.
    That is why operations like Tullet need to be caught by these arrangements/legislation as they operate in some ways like mortgage brokers in the property market - generally as expensive 'middle-men/(women?)' although there will never be admission to that by those involved.
    The question is, as correctly pointed out, is the draft legislation deliberate or a peculiar oversight/ quirky anomaly in its drafting/wording?

  • Comment number 43.

    No it isn't very many.

    We have so much in this country, yet the gap between rich and poor is an outrage. Even worse, is the gap between us and the majority of people on this planet, living on just pennies a day.
    We have to take care of those who to follow and those already here, yet we find that too difficult. And we assume we are the intelligent, supreme species on earth!

    I look around me, and am constantly ashamed of what I see happening on this tiny little island. The selfishness, the arrogance, I see astounds me. Bankers and the rich are behaving as though they have been condemned to living in a UN refugee camp... At the same time, the politicians discuss and negotiate what they should do with the banking industry while the bankers are throwing their tuxedo-wearing action men out of the pram.

    #38 BobRocket

    I'll spend some time tomorrow reading the whole thing. Any idea who funds these people?

    42. At 00:30am on 16 Dec 2009, nautonier wrote:
    The question is, as correctly pointed out, is the draft legislation deliberate or a peculiar oversight/ quirky anomaly in its drafting/wording?


    I think it is quite deliberate - surely these companies are no more than contracted-out services - and if so, it seals a tax loop-hole, kind of.
    Well done Alistair!

  • Comment number 44.

    #11, 14, 19 Disagree

    I am sorry but if we do not tackle banking reform now there will not be a real economy in a few years.
    I am not talking about bonuses here. Bonuses are a symptom. Look at how the profits (If you can call them profits) are made that allow these bonuses.
    The banks and their regulation are the problem and it is right and vital that we continue to highlight that fact.

  • Comment number 45.

    If bankers were making bonuses successfully providing British jobs for British workers then I think that there would not be any complaints at any level of bonuses. Sadly, that is not the case.

    The central issue is who should be allowed to have access to the monies held by the banks and in what amount and what terms - that is now a political question that has been ignored in the past. The banks have politicised this themselves.

    All 'negative bank trading' should be taxed heavily or out of existence - that is the issue - what is negative and bad bank trading?

    This means that people like nice man Soros would be taxed out of existence/ out of the country. I'm not bothered if the negative trade scum go overseas - Good Riddance!

    The banks and related FI's are not just scared of taxes - what they fear most is transparency and public scrutiny!

  • Comment number 46.

    It is not the bankers who are being supertaxed, it is the banks. The banks are merely a vehicle for the use of the culprits, and their money is ours. Am I the only one who knows this? Is everybody else blind?

  • Comment number 47.

    <RICHPOST>"Just in case any of you have noticed the remarks made today by Royal Bank of Scotland's chairman Sir Philip Hampton that "there have been no threatened mass resignations of the board", his statement is completely consistent with what I wrote last week (see "RBS board to quit if chancellor vetoes £1.5bn in bonuses")." <BR />Erm, is this a new definition fo the word 'consistent' that I and the Oxford dictionary are unaware of?<br> Or is this a play on the word 'threatened' in that it was 'not a threat, but a promise'?</RICHPOST>

  • Comment number 48.

    <RICHPOST>@39<br>"I reckon that you CD, DA &amp; WOTW likely fall into that category. It’s not very many though is it."<BR />And me!<BR />How about we drag this blog slightly to one side, and make suggestions for what would work better for our society than some of the rubbish we have to live with? (NB Society, not economy- the economy should serve society, not the other way around)<BR /><BR />Suggestion number 1 has already been made yesterday by Bill Gallagher- Tax people based on the passport they hold not where they reside. (assuming they have a passport of course, if they don't have one then the country they live in is the only one they can't be residing somewhere else for tax avoidance!)<BR />Suggestion 2- Tax companies based on where they make their money, not where they put their head office.</RICHPOST>

  • Comment number 49.

    The reason there is an or instead of an and is because the Chancellor also said 'that those with the broadest shoulders should bear the burden'.

    Socialist government you see. Although these companies are already paying 000's of millions in tax payments, the government has made such a dreadful mess of the economy by reckless spending that it needs to drain the finanacial sector of cash desperately needed.

    Totally ignoring the fact that these financial institutions will go and trade in friendlier countries thereby denying the country of longer term income streams.

    Short sighted and small minded policy creation aimed at the popular vote and to encourage envy, which is their last chance at getting re-elected.

    'Never trust the advice of a man in difficulties!' - Aesop

    'I don't want to embark on bitter or harsh controversy, but I think the exalted ideal of the Socialists - a universal brotherhood, owning all things in common - is not always supported by the evidence of their practice. They put before us a creed of universal self-sacrifice. They preach it in the language of spite and envy, of hatred, and all uncharitableness.
    They tell us that we should dwell together in unity and comradeship. They are themselves split into twenty obscure factions, who hate and abuse each other more than they hate and abuse us. They wish to reconstruct the world. They begin by leaving out human nature.
    Consider how barren a philosophy is the creed of absolute Collectivism. Equality of reward, irrespective of service rendered! It is expressed in other ways. You know the phrase - "From each according to his ability, to each according to his need."
    How nice that sounds. Let me put it another way - "You shall work according to your fancy; you shall be paid according to your appetite."' - Winston Churchill

    Hasn't changed much, has it?

  • Comment number 50.

    Robert,

    Instead of lobbying on behalf of your mates why don’t you use your privileged position to challenge those in charge running our economy?

    - Get them to explain why a 2% inflation target is desirable
    - Ask GB if he regrets selling all that gold at $275/oz
    - Ask Merv the Swerv how he plans to control prices whilst at the same time inflating the money supply

    Banking can still be important to this country, but it needs to be scaled back to the extent that it only actually extorts money from the rest of the world, not the UK. After we’ve robbed resources from the rest of the world, a bit like we did during the days of the Empire, it would be a good idea to invest the proceeds in “real industries” as well as try to rebuild our gold reserves.

    Then maybe we can aim to reform banking by tightening up the reserve requirements until we eventually have full-reserve banking.

    [Exit stage left, duck for cover]

  • Comment number 51.

    36. At 10:49pm on 15 Dec 2009, oap_john wrote:

    Were our rulers economically illiterate, or did they deliberately want to perpetuate the "Ponzi"?

    If the latter, why? The next election??

    ----

    I'll go for a combination of both, and obviously "the next election" is the reason why real reforms are never going to come until there is a collapse.

  • Comment number 52.

    The Royal Bank of Scotland Banksters that are refusing to resign on the originaly stated grounds of protecting shareholder interests should now be sacked ,on the grounds of failing to protect shareholder interests BY RESIGNING.

    Iam sure that there are plenty of MA sons WATING TO TAKE THEIR PLACE AT THE HEAD OF THE GRAVYTRAIN EXPRESS that had its brakes removed before going round the bend on its track err.

  • Comment number 53.

    17. Rwolff. Do you actually know what some of these businesses do? Independent stockbrokers for example do not have banks as clients or suppliers. How have they benefitted from this situation. Many have been set up by private enterprise, have paid taxes, and cannot actually afford this tax, particulalry as the business model usually demands very modest basic pay.
    Most RBS brokers were all taken offside and given guarantees.
    So, Independent, tax paying enterprise is subsidising RBS. Nice.
    Think about it. If RBS bonus pool were being taxed as the Government tells us, then this alone would raise £750m. How come 'citywide' it amounts to £550m? Cos the underdogs are being punished for the sins of thhe big guys.
    Oh, and of course it's a nice bit of (Za)New Labour kicking honest, British, tax (over)paying enterprise whilst they can

  • Comment number 54.

    Assuming that all bank bonuses and remunerations are already taxed unless there is tax evasion - the issue is who should be taxed more and why?

    The banking finace debate has beocme almost intractable , I think, because the big picture has been lost and too many vested intrerests are at work.

    The UK, can I think, recover economically and fairly quickly and with a better internal economic structure if the right things are done:

    1) Apply a strict spending test for all - every penny of public spending using qualitative tests for spending such as ensuring British jobs for British workers.

    2) Stop negative public spending e.g. throwing £1.5 Billion at overseas climate aid when population increase is the underling cause of CO2, global climatic changes and resource shortages

    3) Eliminate UK income tax and NI's for those earning less than £15K pa and give the low paid a level playing field to compete against tax dodgers and the black market. This would allow the HMRC to go after 'bigger fish'. At the same time scrap the minimum wage and end unnecessary bureacracy. Increase VAT selectively on e.g. 4x4's and make those who go into hospital drunk pay for their healthcare and problems caused.

    4) Align government public spending /benefits to concentrate on British job creation

    5) Tax negative UK bank trading/bonuses heavily or out of existence.

    6) Ensure that any bank in the UK concentrates their lending and activities on eliminating UK unemployment and cutting UK imports.

    7) End UK Council tax as about more than half the UK adult population pays nothing directly towrads UK local government finance even though this is the sector of the population that generates most of the costs. Replace it with a sensible community charge based on the National ID card that allows access for government public services and benefits using modern technology.

    If those things can be done quickly - the UK will be 'buzzing' in around two years time and I do not think that general heavy income tax rises are necessary to achieve this harmonisation of government fiscal and related policy.

    Of course, no politician has the guts to do this or soemthing similar and so the UK is likely to stagnate at least in economic terms - indefinitely!

    Yes I realise the UK cannot do some of this because of EU and other law and its make your mind up time for the UK. We can do it if we set our minds to it and have the political courage and willingness to make it happen.

    It is the correct harmonisation of bank control/ tax and spend that can make it happen and lift the country out of recession and very subtle changes in political banking control/ taxation can reap massive benefits to the UK.

    It's our money - let's do it, let's make sure they get it and let's do it now !

  • Comment number 55.

    #43 copperDolomite wrote:

    '#38 BobRocket

    I'll spend some time tomorrow reading the whole thing. Any idea who funds these people?'

    They are an independent think tank and registered charity, the wikki says that they are funded by individuals, industry and international grant giving bodies.


    #45 Nautonier wrote:

    'The banks and related FI's are not just scared of taxes - what they fear most is transparency and public scrutiny!'

    Absolutely spot on, people are starting to question the validity of the current Banking model and whether it is fit for purpose in the 21st century.


    #49 Sircomspect wrote:

    'Although these companies are already paying 000's of millions in tax payments'

    Yes the Financial Services and Banking industries do contribute to the economy, this is from 'A Bit Rich'

    'Myth 1: The City of London is essential for the UK economy
    Access to finance for everyone is vital for the UK economy to function. Yet the City
    of London has primarily been concerned with an aggressive quest for profits. This
    has heaped the worst financial crisis for a century on all parts of the economy.
    Even those closest to the City are increasingly sceptical about its value to the
    UK economy. On best estimates it contributes 3 per cent a year in value added
    compared to 12.5 per cent value added contributed from manufacturing.'

    So whilst they do contribute in the good years, how long will it take them to make up for the bad year ?



  • Comment number 56.

    If a window cleaner cleans a Bank's windows, shouldn't he be supertaxed, according to the student on a bike ill informed rhetoric spilled out on this blog? And the cleaners, construction workers, taxi drivers.
    We all will be soon anyway.

  • Comment number 57.

    #44 Of course the banks have to be sorted out, thats taken as a given, but a bit more focus on the fallout caused by the crisis from all this would not go amiss from a business editor mind, not the banking editor.

  • Comment number 58.

    Has anyone noticed the increased level of litigation at the moment?

    I think I'm right in saying we have Goldmans and an institutional investor, Citigroup v Abu Dabi, EMI v Citigroup and a plethora of "Madoff style" Ponzi schemes and insider trading cases.


    When the theories of financial wizardry fail the next step is to protect the Capitalist system through the legal system. Be prepared to see some very 'odd' rulings over the next few years - in order to maintain the 'acceptable face of capitalism'.

    In a world where business is completely based on trust - it's amazing how little there is around - now that the boom is over of course - because while it was going nobody was too bothered were they?

    I also saw that there is more regulatory fining around, I think one of the Swiss banks got hammered by a US fine for some offence or other today (or more accurately 'agreed to pay').

    The lawyers will be rubbing their hands with glee, but this world of litigation is not a good one for business.

  • Comment number 59.

    I think that the target is speculation - not just Bankers - as such this is fine. I wonder why Peston takes exception to it.

    It would be interesting to launch a 'no big bonus' Bank and see if people flock to it.

  • Comment number 60.

    #55 Totally agree, but the 3 per cent they contribute is increasingly more valuable, especially since unions and socialist governments have effectively destroyed manufacturing competitiveness in the UK.

    That is why China and India do so well. Low operating costs and no minimum wage worries.

    I suppose we could penalise the finance sector and lose every income stream we posess. Turn the City of London into a ghetto with millions of unemployed.

    Or, we could encourage the City to rebuild its financial sector in a structured, responsible and economically viable way with greater growth potential and low restricted trading regulations.

    Let the traders make huge amounts of money and make the UK a place to spend it.

    Of course it would also be sensible to separate out the vital services by ensuring savings and pensions are secure and unconnected, but allowing the traders the freedom to invest with risk in the knowledge that if they stuff it up, they stand to lose the lot.

    Oh hang on!, That's capatilism isn't it!

    We won't see that then, because Socilialist values insist that if you do make loads of wonga, you have to give it to everyone else deserving or not, so that would mean that risking pensions would be encouraged, banks, deposit accounts and savings linked to trading all encouraged to share the wealth and..... oh my! what if the bubble bursts?..... Blame the traders and tax them off our island.
    Politics of envy my friend.

    I think your myth is a bit of a myth. 3% may be the value in monetary terms, but a strong financial sector means so much more to the value of an economy looking to grow.

  • Comment number 61.

    The motivation of the government has never been about taking the necessary actions to promote financial stability. This is yet again a massive stealth tax on the shareholders of these companies. It has always been about ways to take advantage of the situation to sustain their own fiscal profligacy. Brown is a devious man, a financial charlatan, Darling his wee puppet. Please don't be fooled any longer with this political charade, time is running out for us to put our own house in order before we face the ignominy of being forced to take action by the biggest of global quangos, the IMF.

  • Comment number 62.

    All this bleating about life not being fair. When it's the nasty "rich people" (usually meaning "people richer than me") or the "nasty bankers" or the "nasty (hated group of the day here) the masses line up with their metaphorical pitchforks to spew their venom.

    But let's look at another aspect. Look at the Copenhagen summit, where the great and the good flew in (using many private jets and so many limos that extra cars had to be brought in from the rest of Europe). The summit was reckoned to produce the same carbon emissions as small nations produce in a year. And for what? To tell us, the little people, that we're going to have to cut out carbon emissions or be taxed for it. Presumably private jets and limousines emit no carbon when attending a conference on carbon.

    So before we bleat about life being unfair, let's look at who has been at the helm for the last 12 years, and let's look at what is going to hammer the little people more than the issue of bankers and their bonuses will ever do.

  • Comment number 63.

    You cant [super tax ] these people they have lawyers to bury the money from the tax man ,things like [nom doms]/ charities/ investing in carbon trading/cabon nuetral/biodegradable/lead free/none violent investment opps
    this country was born avoiding tax, why else would you have tax avoidance lawyers one thing is sure the money dont stay in this country unless they
    are making money with it and then they dont pay tax on it, ref the above
    open a business in this country=rent a warehouse /employ some people
    use a courier service all of the above are tax deductable register your company as a charity registered in Panamar SORTED THEN

  • Comment number 64.

    54

    Flies circling the corpse make a buzzing noise also.

  • Comment number 65.

    the gov took the silver out of our coins and sold it,then they did the same with copper coins/then they sold off our gold reserves/they already sold the [cheap north sea oil]we dont mfg anything any more all the factories are owned or registered abroad ,the only thing to tax is the people and for that they invented climate change:

  • Comment number 66.

    Come on people, you don't even have to wake up to be able to smell the coffee on this one.
    The government needs the bankers more that the bankers need the government. They need the tax revenue generated, and New Labour needs the funding (direct and indirect) for its election campaign, therefore it cannot upset the system. The public need to see some action on the unfairness of the situation, hence the supertax, but so that the bankers are not upset it has more get out clauses than your average health insurance policy.
    So all it is is politiking of the highest order. "Look electorate at how tough we are with these bankers" whilst also saying "Hope that's ok with you guys in the City? Don't forget how accomodating we have been when it comes to donation time?"
    Utter nonsense from the leaders of our great country

  • Comment number 67.



    The various Mansion House speeches by our current Prime Minister should be re-read.

    This is one quote from the 20th June 2007 speech. Yes, folks 20th June 2007.

    'So I congratulate you Lord Mayor and the City of London on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London.

    And I believe the lesson we learn from the success of the City has ramifications far beyond the City itself - that we are leading because we are first in putting to work exactly that set of qualities that is needed for global success:

    openness to the world and global reach,
    pioneers of free trade and its leading defenders,
    with a deep and abiding belief in open markets,
    champions of diversity in ownership and talent, and of flexibility and adaptability to change, and
    a basic faith that from wherever it comes and from whatever background, what matters is that the talent, ingenuity and potential of people is harnessed to drive performance.'

    What about this, from 2006

    'People talk of China as the future manufacturing workshop of the world, they call India the future office of the world - I believe that London, like New York, is already the capital marketplace of the world.

    And I do not believe this has happened by accident.

    The message London's success sends out to the whole British economy is that we will succeed if like London we think globally. Move forward if we are not closed but open to competition and to new ideas. Progress if we invest in and nurture the skills of the future, advance with light touch regulation, a competitive tax environment and flexibility. Grow even stronger if this is founded on a strong domestic market built on the foundation of stability.'

    And this from 2005

    Let me thank you first for the scale of the contribution you make to the British economy - the £50 billion of income, 4 per cent of national output, and the 1 million jobs that arise. And let me thank you also for the resilience, the innovative flair and the courage to change with which you have responded to not just the world economic downturn but to the greatest economic challenge of our times - the challenge of global competition.

    ANd in 2004 he talks about cutting the national debt dramatically and this

    'Your presence tonight demonstrates that the City of London – and our financial services industry - has learnt faster, more intensively and more successfully than others the significance of globalisation :

    that you succeed best not by sheltering your share of a small protected national market but by striving for a greater and greater share of the growing global market; '

  • Comment number 68.

    <RICHPOST>66. At 11:07am on 16 Dec 2009, Harry178 wrote:<br>"Come on people, you don't even have to wake up to be able to smell the coffee on this one.<br> The government needs the bankers more that the bankers need the government. They need the tax revenue generated"...<BR />As you appear to have missed from other people pointing out:<BR />The bankers do their best to avoid tax, as do all the big earners. Amply demonstrated by their whining and threatening to leave the country- which is what the last few days of blogs have been all about!<BR />How many years of the tax they have paid equates to the amount of bail out we had to provide following their enormous errors? 5 years? 10? 30?<br> I'd quite like to know the answer to that one Robert!<BR />So I would suggest Harry, that one actually does need to wake up!</RICHPOST>

  • Comment number 69.

    #58 writingsonthewall. You´re barking up the wrong tree there my Marxist friend. Sure there is a lot of litigation around as rich people fall out with other rich people. So what?

    A more relevant question is why there are substantially no criminal investigations underway regarding sny of the prima facia crimes that have been committed by the financial oligarchs. Consider the US S&L loan crisis of the 1980´s when upwards of 1,000 executives went to gaol. Contrast this with the position today.

    Consider some evidence: Look at the testimony of Bernanke, Paulson and Lewis before the US Congress, then ask someone to explain how one of those 3 could be doing anything other than telling falsehoods.

    Consider that Catherine Austin Fitts (a member of the the Bush 1 administration - so hardly an uninformed left wing loony) advises clients not to invest in US/UK markets because they are rigged.

    Consider the claims of the former CEO of the IPE who puts forward an argument that two named players are suspected of manipulating the IPE.

    Consider the government response to the arrest warrant for a former Israeli Foreign Minister. Ah we must act to change the law.

    The legal apparatus has been captured by the kleptocracy.

  • Comment number 70.

    Post 56 I very much doubt the bank will be giving the window cleaner or the cleaner a bonus in excess of GBP 25,000.

    It's nice to see France will be off limits for bankers too.

    http://news.bbc.co.uk/1/hi/business/8415851.stm

    All this talk of people fleeing the country is so much hot air let us look at this sensibly and dispassionately.

    1) The tax will only apply for a few months.
    2) There is a huge cost in relocating abroad. I very much doubt others will be as generous as Tullett Prebon for all of their staff.
    3) If you move abroad it is a bit more awkward to visit your family or friends still in the UK.
    4) Think of the upheaval for the wives and the children particularly if you move to a country where a foreign language is spoken.
    5) Who is not to say that the country you move to won't do something similar in the future?
    6) Many of the tax haven countries are losing business and companies to Euro countries and Switzerland because of US tax implications so any move may be short term.
    7) Behaviour that is commonly seen outside city bars late at night would in many countries see you locked up in not very salubrious jails and in some places physical punishment via lashes etc.
    8) Its rather a long commute to watch the football from your box at Wembley or at a Premier League ground in London and the Lords test, Wimbledon, Ascot or Cheltenham aren't a day trip either.

  • Comment number 71.

    60. At 10:25am on 16 Dec 2009, sircomespect wrote:

    "#55 Totally agree, but the 3 per cent they contribute is increasingly more valuable, especially since unions and socialist governments have effectively destroyed manufacturing competitiveness in the UK."

    Well then the logical answer is slavery - if we get rid of workers rights and conditions we can make British manufacturing competitive again. All we need to do now is establish who will be slaves and who will be masters - I bag a master please!

    "Politics of envy my friend."

    Oh - that old line eh?

    Well how do you explain me then? I earn a fortune in the city in the finance industry and would loose out heavily in the event of a tougher tax regime - but you don't hear me talking about increased taxation coming from 'envious poor people' - mainly because I have considered how this crisis occurred (again) and what part I played in it (although I at least earn my money by selling my labour, not extracting it from others hard work)

    You see just because you have convinced yourself you are worth the excesses you are paid - doesn't actually make it true.

    Politics of idiocy is the path you are following - or do you think that in a finite world we can allocate resources unevenly and the result won't be a collapse of society?

    Do you know about history? Do you know that eventually the rich become too few and amass more and more wealth creating an 'army of poor and hungry' who then rise up and overthrow you? History is littered with attempts to make this true - entire civilisations have been collapsed trying to make the imbalance work - and all have failed.

    ....but then who is ever interested in history when you can make up any future fantasy you like in the world of finance.

    Ever day the number of irate citizens is growing (I believe another 14,000 reposessions and another few thousand on the jobless figure)

    These people are the consequences of your 'uncanny ability to produce wealth from nothing' - which we know was never the case.

    It's good to see the wealthy clinging on to the premise that they are 'good value for their money' - and slowly realising they never were in the first place.

    Private security is not cheap you know - go to Kenya and see how the inequality works there and what life is like as a result.

    Once again, the people who defend the system are the most short sighted - which happens to be why they are so suited for finance.

  • Comment number 72.

    67. At 11:27am on 16 Dec 2009, mrsbloggs13c2

    YOu are continuing to put the entire blame at the door of Gordon. Well don't worry he will be gone soon and the crisis will remain - who will you blame then?

    The actors change but the play remains the same. The bust would have happened at some point regardless of policy.

    I cannot believe how people cannot see the crisis being endemic to the system - you cannot split it into 'this time it was Grodon's fault' - so what about the 80's, 70's, 30's etc - were all those crises down to specific individuals at the time?

    ....bit of a co-incidence don't you think?

  • Comment number 73.

    #68 Leviticus
    Think you have overslept!
    I am not defending the bankers. What I am saying is this.
    The bail out was a fait accompli which the government handled in a disasterous way. How can any organisation pump so much money into a failing venture without imposing control over said ventures. Just consider the Fred Goodwin pension fiasco, before you even get to bonuses to see the lack of control that the government should have, but failed in it's duty of protecting the taxpayers interests. The only reason that the bankers can get away with this is because the government has let it. So who's to blame? The naughty children for eating too many sweets or the parents for giving them the money to buy them with?
    As for people avoiding tax, I don't blame them as this government has no respect of value for the tax income generated. Until this happens and waste is eliminated then I would encourage everyone to pay as little tax as possible.
    One sugar or two with your coffee?

  • Comment number 74.

    66. At 11:07am on 16 Dec 2009, Harry178 wrote:

    "The government needs the bankers more that the bankers need the government. They need the tax revenue generated,"

    ...and for the 50th time this yesr I ask.

    Can you explain how bankers generate wealth please?

    It's a simple question and yet not one blogger or 'Economic journalist' or Economist on here has been able to answer it.

    Until you can answer this then you're arguments about anyone needing banking are baseless.

    ...and I also know the answer, which you will eventually conclude - which is that the banks do not generate profit - they extract it from the underlying businesses it invests in through lending - and the source of this profit? - Surplus Labour value.

    If you have an alternative explanation - I'm all ears...

  • Comment number 75.

    63. At 10:37am on 16 Dec 2009, pmose wrote:

    "use a courier service all of the above are tax deductable register your company as a charity registered in Panamar SORTED THEN "

    ....but do you never wonder why these countries have low tax regimes in the first place?

    1st law of market Economics - if enterprise doesn't want to come to your country - attract it through a low tax regime.

    Why doesn't enterprise want to come?

    ....well maybe it's because there's every likelyhood that:

    a) The Government changes and alters the tax regime dramatically
    b) A military coo occurs and you loose everything
    c) A socialist Government takes control and you loose everything.
    d) The country defaults on it's debts, resulting in devalued currency and instability - not a good environment for 'businesss'

    ...but once again the short-termism of finance shines through.

    Does anyone remember all those people, businesses and councils that were attracted to Iceland for the high interest rates?

    ....what happened there then?

    Oh dear - not only short sighted but also with an incredibley short memory.

    Dubai is a good place to go to avoid tax - or maybe not.

    All we need now s for Switzerland to start imposing restrictions on foreign workers byincreasing their tax and for the small tax haven islands to be investigated by the US and suddenly the options are wearing thin.

    The lower the taxation - the bigger the risk.

  • Comment number 76.

    #74 writings on the wall.

    When I said the government needs the banks more than the banks need the government I am speaking in purely recent times. If the bailout hadn't taken place when it was needed the results would have been massive to the UK economy (multiples of the problems caused by the bailout), if you disagree with this statement then let me know and I won't trouble you any more. Therefore the government had no option but to bail out the banks in order to stop the economy from instant collapse and take control. But it failed to do this. Any government would have followed a similar initial course of action, however one would have hoped it would have put in place the controls required. Therefore in simplistic terms the government needed the banks to keep functioning in order to keep the economy from collapsing. The banks did not need the governments help as it was a no-brainer and would have been so for whoever was in power.
    I would like someone at the end of this fiasco to equate the true value of the financial markets against the ammount of public money pumped into it so that a view can be reached on how much this has cost us the taxpayer.

  • Comment number 77.

    62. At 10:34am on 16 Dec 2009, ThoughtCrime

    You have conveniently forgotten to mention that the majority off the environmental problems we face were brought to us by the 'rich' western nations.

    So the inequality remains, the rich have a system which ensures they retain their wealth (and in fact grow it) - which because it's mainly un-earned income - the propensity to waste is much greater.

    ...and the consequences of that waste are coming back to haunt us - so it seems it's the same 'unfairness' by the same set of people that is causing further inequality - i.e. we all have to pay for it.

    Does that sound familiar? - comparing bank bailouts to environmental bailouts both have been exasperated by greed and both require unfair policy to resolve them.

    ...seems to me the answer is simple - remove those who cause the problem.

    P.s. We need to get things into perspective here - 10% of the worlds people own 80% of the worlds wealth. Everyone who see's taxation policies on the 'rich' assume this will adversely affect them (because they see themselves as rich)

    Trust me, unless you earn over £1m a year then you have very little to worry about.
    ...and if you do earn over that then how do you justify it when you spend time reading BBC blogs - parasite!

  • Comment number 78.

    A point we are forgetting is that banks and other intermediaries only got to make huge profits from the money-go-round because governments effectively privatised the creation and control of money supply.

    Remember Milton Friedman saying inflation was created in whitehall?
    Whether that was true then, it certainly isn't now.

    And it is notable that when the BOE chose to inject lquidity into the financial system to stop it siezing up as it did in the 1930s (which we used to call demand management), they did not do it as J.M. Keynes recommended. Instead of using the money to increaee public expenditure on high-profile programs of public work to create useful employment and build infrastructure, the BOE used the money to . . . buy gilts!

    The government and the BOE seem to be so fixated on the financial so-called industry they have lost any idea how to help real industry or real employment.


  • Comment number 79.

    69. At 11:39am on 16 Dec 2009, armagediontimes wrote:

    "#58 writingsonthewall. You´re barking up the wrong tree there my Marxist friend. Sure there is a lot of litigation around as rich people fall out with other rich people. So what?"

    ...because that's how wars start - rich men falling out with rich men.

    The point is that the system relies on trust - "I promise to pay the bearer" and all that - when trust is gone then so has the finance system.

    The interesting part is that usually big companies don't sue each other because it looks bad and is very time consuming - so how desperate are they to recoup their losses that they take this action?

  • Comment number 80.

    76. At 12:37pm on 16 Dec 2009, Harry178

    I do agree and I do understand what you mean now.

    The Government is backed into a corner, and rightly as you said because they had no choice.

    However this is not how the City see's it.

    If you read Alistair Heaths column in the city AM (page 2 on the link) you will see he calls for an end to bailouts - and in the same paragraph stipulates that "the only intervention in future would be to prevent runs or stop the system from imploding"

    ....so is it bailout - or not?

    At least this piece (which is essentially reflective of the City's opinion) is at last realising the contradiction which is abundant within finance.

    ...but I disagree that the Government need the banks to recover - I mean tax payment on fictional income is not a stable way of repaying public debt.
    All banks profits this year are down to QE and Government assistance - the Government is generating it's own tax receipts - via bankers wallets of course!

  • Comment number 81.

    The focus on bankers' bonuses is a sideshow put on and maintained by the government to distract us from close consideration of the more fundamental and worrying problems presented by our current difficulties. Let's all wake up and get past this triviality.

  • Comment number 82.

    78. At 12:39pm on 16 Dec 2009, Cassandra wrote:

    "And it is notable that when the BOE chose to inject lquidity into the financial system to stop it siezing up as it did in the 1930s (which we used to call demand management), they did not do it as J.M. Keynes recommended. Instead of using the money to increaee public expenditure on high-profile programs of public work to create useful employment and build infrastructure, the BOE used the money to . . . buy gilts!"


    ...and there lies the difference between increasing aggregate demand through public works and merely increasing the supply of money.

    Friedman claims the control of the money supply can effect the Economy - but this is like saying the brand of tissues you use prevents you getting a cold virus.

    Monetarism = complete mis-understanding of Economics.

    All fiddling with the money supply in this way does is devalue the currency further making it harder to get your currency tied back to 'real value'.

    ...it's like going mental - the further you get from reality - the harder it becomes to get back to it and only 'shocks' will have such an effect.

  • Comment number 83.

    Sorry - forgot the CtyAm link:

    http://www.cityam.com/cityam-today/

  • Comment number 84.

    81. At 12:49pm on 16 Dec 2009, Ray Blake wrote:

    "The focus on bankers' bonuses is a sideshow put on and maintained by the government to distract us from close consideration of the more fundamental and worrying problems presented by our current difficulties. Let's all wake up and get past this triviality."

    True - but it gives us something to do while we await the 'postponed financial armageddon'
    Once it is here the will be no need to bash bankers as their conscience will do that, and failing that - angry citizens.

  • Comment number 85.

    #72

    I agree, a bust of some kind or size would have happened sooner or later

    Whatever else he might have done...

    Gordon said 'no more boom or bust'

    Along with all those other things and I expect plenty of people believed it all.

    How's the investment bank today? How are the financial wizards and paper pushers you work with?

  • Comment number 86.

    A quick question or two:
    1. If banks produce nothing, how do they have enough money to lend for loans/mortgages etc?
    2. Have any of those raging against the bankers taken a mortgage over the past 10 years (the money lent would probably have been raised using CLOs and CDOs)
    3. What are the chances of the EU allowing a PO Bank these days?

  • Comment number 87.

    Ah Harry, I think this comes down to your phrasology!
    The way you worded that first paragraph sounded like you were in fact defending the necessity of the banks. In truth I believe that the only reason the banks are 'neccessary' is due to the way they have manipulated the financial system over the last century or so. It would appear that they read Das Kapital and utilised Marx's dissection of the capitalist system in order to work out the best way to utilise it as a way of returning to the feudal system of the pre-industrialised world!
    Likewise, in terms of phrasology, I was suggesting that we all need to wake up- not just yourself (hence the use of 'one' and not 'you').
    As for me, I don't like coffee. I'm far too English to drink the juice of a burnt bean!

  • Comment number 88.

    @ 74, writingsonthewall wrote:
    “...and for the 50th time this year I ask.

    Can you explain how bankers generate wealth please?

    It's a simple question and yet not one blogger or 'Economic journalist' or Economist on here has been able to answer it.”

    For me, this question captures the essence of the UK’s problems. WoW, thank you for the provocation!

    In fact, many of us, including WoW, have answered the question many times. But the significance still hasn’t sunk home. The paragraph below is copied from a post I recently made on Stephanie’s blog:

    “Wealth is created by the application of labour to the means of production, converting raw materials into sought after goods. The process requires an additional element: finance. Once started, the process should, outside of difficult times, become self-financing, if successful. The finance part is where a lot of money circulates; it's the place to be to get rich quick. Because of this, in a foolish world, manufacturing may be allowed to wither and finance takes over, producing and selling nothing more than paper promises. But, promises are not wealth and, in the long-term, cannot be used to pay debts.”
    Bankers and other financial services (should) contribute in an important way to wealth creation by cash facilitation, oiling the financial path as it were. However, it can all go wrong when the bankers find it easier to get rich by investing in paper speculation than manufacturing. In my view, we’ve allowed it to go seriously wrong in the UK over the last half century. We need to learn that finance is not an end in itself.

    I apologise if my formulation is far too Adam Smith for the modern world. I’d appreciate it if anyone would re-construct the concept in a more up to date style without losing the essential truth.

  • Comment number 89.

    #79 writingsonthewall. You are beginning to sound as though you are barking up a whole forest of wrong trees.

    There are plently of wars going on at the moment. They just haven´t reached your street yet. Don´t you know the wars in progress can be readily scaled up - "A war for all seasons" or something like that.

    If the system is based on trust then why does the US need 12 Carrier batlegroups?

    The last job I did in London was in 1997. At that time the partners of a leading City law firm were pulling in GBP 750,000 per annum. If everyone is so trusting why are there so many lawyers attached to the City and Wall Street and why do they earn so much?

    Big companies fall out with each other all the time. It is just that it is usually cheaper, more expedient and (crucially) more reliable in terms of outcome to settle out of court. All that is happening this time is that people can´t settle because they have no money. This should tell you something.

    It tells me that you are experiencing full system meltdown. Nothing to do with Marxism or any other ism - everything to do with systemic bankruptcy.

  • Comment number 90.

    <RICHPOST>But getting back to my idea in post 48:<BR />Suggestion 3- We currently have a system where we can either get benefits (money from the government) or tax credits (money from the government)- both of which we have to apply for. This is combined with a tax threshold system (money from the government by virtue of not paying it in the first place) that does very little to alleviate the tax burden on the lowest paid.<br>Instead why don't we pay all our citizens a fixed amount (the so called 'amount the law says you require to live on') and tax all income from other sources at a slowly increasing rate. For example 10p per pound on the first 1K per year, 11p on the next etc up to a maximum rate.<br><BR />Those that require additional help then simply apply for that additional help, instead of having to apply for everything.<BR />This should remove most of the benefits system, along with its inherent flaws and exploitability, whilst simultaneously providing very clear transparency on how much tax you actually pay and what you earn.<BR /><BR />Suggestion 4- Earned income (work) should have a lower tax rate than unearned income (eg share dividends and capital gains).<br><BR />If I need to explain the reasoning behind that one then logic may well be lost on you...</RICHPOST>

  • Comment number 91.

    Let's not forget, pre Clinton, Banks, particularly US banks were criticised for being too conservative in their lending practices, in that they wouldn't lend to people who... errr.... couldn't afford to pay them back.
    Slick Willy put a gun to their heads, threatened restrictive legislation repealed Glass-Steagal, and hey presto, financial 'innovation' to 'protect' themselves and inflate the lending bubble to satisfy politically demanded universal property ownership!
    See what happens when the left gets its hands on the books.
    Tell that to kids nowadays.

  • Comment number 92.

    85. At 1:04pm on 16 Dec 2009, mrsbloggs13c2 wrote:

    "Gordon said 'no more boom or bust'"

    That is in fact a mis-quote - he actually said:

    "I want this to be the New Labour Government that ended Tory boom and bust forever."
    ...which is actually true - we have had Labour boom and bust and not a Tory one.......but don't let a little bit of fact hold you back from your assessment.
    If people did believe him then more fool them - would it be the first time in history a politician was taken for his word?
    If people don't understand that boom and bust is systemic by now (i.e. within the system of Capitalism) then there really is no hope.


    "How's the investment bank today? How are the financial wizards and paper pushers you work with? "

    They are just as deluded as ever - if only people really knew how finance operates then there would be a lot more anger than there is at the moment.

  • Comment number 93.

    89. At 1:27pm on 16 Dec 2009, armagediontimes wrote:

    "It tells me that you are experiencing full system meltdown. Nothing to do with Marxism or any other ism - everything to do with systemic bankruptcy."

    Periodic systemic meltdown = Contradictions of Capitalism.

    Same horse - different name.

  • Comment number 94.

    writingsonthewall (74 and 77)

    Banks can create value in many ways, largely through taking a role as an intermediary when two parties to a trade don't trust each other.

    Let's say your UK company wants to expand into the US market and needs to issue some bonds to raise the money. But in the US nobody has heard of your company, you're an unknown credit risk and the market wants a premium to lend money to you. But they know MegaBank and trust them. So while you might have to pay 4% interest on a bond because nobody knows you, MegaBank might only have to pay 3% interest because they are known and trusted. So to cut a financial structure into simplistic terms, MegaBank issues the bond at 3%, then issues your company with a loan at 3.33% meaning you save 0.67% interest on your debt. In the process MegaBank makes a profit as well (they aren't a charity after all).

    Your post 77 simply highlights the politics of spitefulness and jealousy. I wish I did make over £1m but if I could make a million or more while still finding time to read blogs how does that make me a parasite? If I could earn £1m without spending much time wouldn't you be interested to know how, or are you more interested in throwing insults around?

    It might only be people making more than a million now but just watch that threshold come down as the government scrabbles about for cash. Income tax was sold to the masses on the basis it would only affect the very rich, and now it affects everybody except the very rich.

    So why don't the turkeys wise up and stop voting for Christmas?

  • Comment number 95.

    #92, we have had a Labour boom and bust which is unlike Tory booms-and-busts in that the boom was greater and the bust was deeper. Not only that but the boom was obvious to anyone who cared to look at the figures and the coming bust was equally obvious to anyone who cared to look.

    Given the comparison I'd rather take a Tory boom and bust than a Labour megaboom and total collapse.

  • Comment number 96.

    #90, Leviticus. Interesting proposal to tax unearned income higher than earned income, but you need to define the difference in excrutiating detail. You also need to make a lot of exceptions and disinctions.

    It's easy to appeal to populism by saying the scions of the wealthy who swan around while living on the proceeds of huge trust funds should be taxed.

    But looking at how legislation might affect the masses it's more complex. If I am to provide for my future I need to save. Saving attracts interest, which is unearned income. At what point does the average person's relatively meagre interest become taxed more heavily than the many non-executive directorships that MPs enjoy? Why should the average working person be taxed more heavily for being thrifty?

    When someone retires and cashes in their pension fund, or indeed receives any state benefits, that too is unearned income. So should our pensioners pay more tax to satisfy populist anger against capital gains?

    What we need is a simplified tax system, not yet another process of fiddling around with a system that will still result in the same activity being potentially subject to different taxes depending on how it is described.

  • Comment number 97.

    #93 writingsonthewall. This is getting confusing. You are mixing metaphors and political theories.

    Horses don´t bark
    Capitalism does not bail out failed businesses, or failed business models.

  • Comment number 98.

    At 1:19pm on 16 Dec 2009, yam yzf wrote:
    A quick question or two:
    1. If banks produce nothing, how do they have enough money to lend for loans/mortgages etc?

    Because they create it. Conterfeit if you like

    2. Have any of those raging against the bankers taken a mortgage over the past 10 years (the money lent would probably have been raised using CLOs and CDOs)

    So what. My problem is that on the strength of my deposit the banks have created 9 times that amount in 'funny money'

    3. What are the chances of the EU allowing a PO Bank these days?

    I think Angela might come round to the idea

 

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