Tax the banks or change the Regulators?

The idea that we should now tax bank transactions to stop them paying mega bonuses is absurd.

The government says it wants the banks to lend more money to business. The Regulator says the banks need to have more cash, capital and reserves before they can lend more to business. The best way for them to get more cash, capital and reserves is to make more profit. Now if they make more profit it is proposed they should pay more tax, removing the extra profit from contributing to the cash and capital. They should make up their minds what they are trying to achieve.

I have no time for mega bonuses to the highly paid in state aided banks. Why doesn’t the government just ban them? They are either the owners, or set the terms for the government assistance, so they can just do it.

Given that the Regulators allowed too much excess risk taking in the good times and now want to allow too little in the bad times, wouldn’t it be better to change the Regulators? And can we have an assurance that in the meantime no highly paid Regulator is enjoying one of these bonuses they now condemn?

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19 Comments

  1. Charlie
    Posted August 27, 2009 at 7:51 am | Permalink

    LORD TURNER MUST BE REPLACED AS CHAIRMAN OF FSA FORTHWITH……
    If only for deriliction of duty:

    “In a statement that reversed a decade of policy at the regulator, he also said it was no longer one of his primary aims to promote the status of London as a global financial centre”. Full Article: http://www.guardian.co.uk/business/2009/aug/27/fsa-bonus-city-banks-tax?commentpage=1

    Lord Turner is displaying a surprising ignorance of History, not to say lack of common sense.

    London’s Financial prominence was greatly assisted by the creation of the Eurodollar which resulted from the myopic Tax Regime of the US Govenment of the day.

  2. alan jutson
    Posted August 27, 2009 at 8:06 am | Permalink

    As usual it the complicated way of doing things which is being proposed.

    Oh almost forgot, it may happen to increase the tax take at the same time.

    Whilst I am certainly not in favour of the payment of silly levels of bonuses, I can only assume that the people who receive any form of money payment of bonus, pay tax on them already, as do the Banks on any profits.

    We will have yet more complicated schemes of tax avoidance being put into place, in an attempt to avoid/reduce tax liability.

    Whilst you need to stop excessive reward for simple competance. You do need some element of bonus or reward for talented people who are at the top of their game.

    Yet another reason for allowing those Banks who were going to fail, to only be supported (if that was the chosen way forward) and to at the same time, as a condition of such support, to renegotiate everyones contract and terms and conditions.

    After all, no support, no job.

  3. Mick Anderson
    Posted August 27, 2009 at 8:38 am | Permalink

    The trouble with common sense is that it doesn’t seem to be very common any more….

  4. David B
    Posted August 27, 2009 at 9:17 am | Permalink

    Unfortunately this is another example of how this government identifies a problem and proposes a solution without considering the associated consequences, which in this case will clearly lead to reduced lending as it depletes the banks reserves.

    The law of unintended (if foreseeable) consequences is alive and well and we await the full extend of over borrowing, quantitative easing and many other policies that will do more harm than good in the long run

  5. Adam Collyer
    Posted August 27, 2009 at 9:22 am | Permalink

    Lord Turner’s comments were absolutely astonishing and outrageous.

    He proposed a tax delierately intended to reduce the profits of the banks, so that they couldn’t pay as much bonus. In other words, he believes we should undermine the profitability of the City.

    He said that much of the activity of the City of London was “socially useless”.

    He has therefore attacked two of the statutory objectives of the FSA, namely:

    – maintaining confidence in the financial system

    – promoting public understanding of the financial system.

    And this from the head of the regulatory quango that made many of the mistakes that contributed to the current crisis.

    This guy has to go, regardless of the future of the FSA.

  6. Richard
    Posted August 27, 2009 at 9:24 am | Permalink

    I am a ‘client’ of the FSA. From 2007 to 2008 our payments to the FSA increased by 14.5%. From 2008 – 2009 they have increased by 165%. It seems the public sector continues to enjoy a bonanza at the expense of the rest of us.

  7. Stuart Fairney
    Posted August 27, 2009 at 12:21 pm | Permalink

    I really fear for the future. We don’t manifacture much these days and rely instead on financial services. Fine. So the current policy seems to be let’s demonise those who pay a great deal of tax and drive them abroad (you can run a bank from anywhere).

    Madness which can’t end well. There’s only so much 50% income tax, media attacks and windfall taxes you will accept before saying “bugger this, lets go to tax-free sunny Dubai where we maybe appreciated”

    • Bazman
      Posted August 29, 2009 at 5:18 pm | Permalink

      So why run a bank from and live in London? Lets think and then call their bluff.

      • Stuart Fairney
        Posted August 30, 2009 at 10:46 am | Permalink

        You seem to be making my point for me, are you agreeing?

        It’s not a bluff, they could very easily leave and as our economy is based on financial services not manufacturing it would be a DISASTER if banking went offshore. This seems so obvious as not to require further explanation but anyway

        ~ the loss of corporate tax revenues
        ~ the loss of income tax revenues
        ~ the immediate job losses amongst non-core staff
        ~ the significant knock-on effect of not having wealthy high spending people in the UK along with newly unemployed middle ranking people

        • Bazman
          Posted August 30, 2009 at 4:14 pm | Permalink

          Much of this financial industry is built on sand as the last few months have proved. Now they are a liability and not an asset and a lot of financial dealing is little more than a scam generating nothing for society or the taxpayer.They have fell out of the race to be bailed out by the taxpayer and want to carry on as if nothing happened. Causing a mess then providing the means to get out of it to start another one using the same self serving people.
          Anyone can see this and so any government should be calling their bluff and the bluff of the rich in general. They are not just here for financial reasons either. This idea is just to simple.

        • Stuart Fairney
          Posted August 30, 2009 at 5:44 pm | Permalink

          I believe such ideas underpinned the Russian revolution whereby the capitalists and financiers were just middle men stealing from the workers and if only they could be gotten rid of, a workers paradise would ensue. How’d that work out again?

          Do you honestly think financial dealing generates nothing for society? Where do you think the companies you rely on every day for everything you need get their funding to say nothing of your mortgage?

          Do you honestly think the banks have not been net taxpayers in the last 12 years? Really?

          I would agree bailouts were a hideous mistake, Mr Darling and Mr Cable have saddled us with enormous, open ended debts for years to come but in order to understand sub-prime you need to look at prime cause and not fall back on rhetoric, look at the federally mandated loans to the sub-prime market by Fannie Mae and Freddie Mac, look at the communities reinvestment act. This was the financial vandalism in pursuit of social goals.

          Again, if we drive banks away we make ourselves poorer.

  8. RobertD
    Posted August 27, 2009 at 12:33 pm | Permalink

    Turner’s proposal to tax banking transactions with the deliberate intent to reduce profitability is the last throw of a regulator that has totally lost the plot.

    What the FSA and the other government agencies need to understand is from where does this “excess” profit come. High margins on banking activities have both supply and demand components. High prices for banking products, from excessive charges and interest rates on consumer credit cards to the massive charges made to companies wanting to raise new capital result primarily from a lack of competition between banks. The regulators have allowed the banks to have such a high share of each national market, often protected from foreign competition by “regulations”. Instead of responding by forcing banks to divest themselves of business when they get to a dominant position where they can abuse their customers, regulators have worried too much about capital strength and national champions. Instead of making it easier for consumers to seek real redress through the courts from banks that abuse their situation the regulators have substituted their “tick the boxes with occasional tap in the wrist” controls. Instead of making it easy for companies to shop around to raise new capital they have loaded the process up with complex regulations so that expensive investment bankers have to be employed just to comply with these regulations. The FSA and the Office of (un)Fair Trading have become the main source of banks power to extort money from their customers.

    The supply side has also been corrupted by regulatory action, and the situation has been made far worse by their response to the recent crisis. A large part of most banks capital base is now in the form of subordinated debt, and a lot of its operation funding is from large customer deposits and inter-bank loans. The price at which these lenders and depositors will provide the funding is a function of how risky they perceive the transaction to be. Under the current arrangements their have explicit or implicit guarantees that the government will protect them if the banks get into trouble. They are therefore willing to lend at lower rates of interest than they would if they had to bear more of the risk. Had Northern Rock and HBOS been allowed to go into administration with the bond holders and large depositors losing money then the rates of interest that would be charged to banks whose lending strategy and management bonus structures were considered to be risky would be very much higher than they are today.

    If lenders did not have a guarantee or reasonable expectation that government would come to their rescue it is probable that the covenants to bank debt would include clauses like “Until this loan is repaid total management remuneration will not exceed £X per year. If any interest or principle repayment is overdue then the bank may not make any payment of any bonus for five years after the default has been corrected or until this loan has been repaid in full.”

    The cause of excess bank profits is that banks are allowed to fund their business too cheaply and permitted to charge their customers too much. The people that not only allow this, but by their actions actively created and still support this situation, are the “regulators”. The FSA, Office of Fair Trading, and the Treasury stand together in the dock. If anyone should be paying higher taxes they are the ones to target.

  9. Robert
    Posted August 27, 2009 at 1:29 pm | Permalink

    What actually has Adiar Turner really achieved for his fat cat establishment status ? His record I suspect does not really bear scrutiny close up – the pot calling the kettle black springs to mind!

  10. Adrian Peirson
    Posted August 27, 2009 at 4:32 pm | Permalink

    In my view, the banks should have been allowed to fail, peoples debts shoudl have been writen off, yes credit card debt, mortgages, car loans, business loans, the whole lot.
    People wold have had money then, they would have gone shopping so stimulating the economy, new Banks would have sprung up in their place, hopefully mindfull of what happened to their predescesors.
    Oh and we need our fishing grounds back, our farming freed from Red tape so we can feed ourselves, we need British Car and shipbuilding and electronics back.
    It wont happen under the current Regime because all of this is by design, the New World Order is destroying Western civilisation.

    http://www.infowars.com

  11. Mike Stallard
    Posted August 27, 2009 at 4:56 pm | Permalink

    Allow me to remind you of your own thoughts:
    1. We cannot afford to guarantee the banks any more.
    2. Nationally controlled banks that are too big to fail should be broken up and carefully and judicially sold immediately, especially the foreign profitable bits.

    The two other questions that seem to have slipped casually below the horizon are these:
    1. What about the enormous bad debts based on the fiasco of lending to people who could never afford to repay the money? These have been hidden so carefully that nobody even knows which banks have the debts and the banks themselves haven’t even said how much bad debt they are hiding. There seems, too, to be no attempt to find out.
    2. The unbelievably large government debt which is gulping down huge draughts of newly printed money, is monopolising the money supply and preventing the banks lending to businesses.

  12. Lola
    Posted August 27, 2009 at 6:22 pm | Permalink

    Perhaps now people will start to realise just how totally out of control, arrogant and useless the FSA management is. But like every failed totalitarian state bureaucracy, having lost its credibility all it can now do is to, metephorically, shoot people.

    I have spoken with FSA people and colleagues have spoken with their senior management. All they now appear to be engaged in is (i) reputation saving and (ii) sorting out the next sinecure to be filled at our expense.

  13. Brian Tomkinson
    Posted August 27, 2009 at 6:57 pm | Permalink

    I should like to see you given the opportunity to sort out this whole banking fiasco.

  14. terry mechan
    Posted August 27, 2009 at 7:53 pm | Permalink

    Turner’s is a first class idea which I do not expect a right winger like John Redwood to support.

    Are we going to continue to allow a comparatively few individuals who, for whatever reason, have got themselves into a unique employment position to continue to cull a huge amount of money for themselves while the majority of their working peers in more productive working environments cannot approach anything like the vast sums the leaders in financial institutions pay themselves.

    The banking industry and its management have almost decimated the world’s financial system, yet they think they can get “back to the races” as though nothing has happened.

    Many are lucky they are still in employment and that includes those who are not part of the governments rescue scheme but who have benefited from the “environment” created by the Government’s rescue packages and proposals.

    It’s a good job this is peace time.

    In all-out war, someone like Lord Beaverbrook would have sacked the lot immediately after the crash and replaced them with new individuals.

    Governments, of whatever hue, need to toughen up and stop letting vested interests in the financial industry run the world for their own benefit.

    It’s easy to make money from money; it’s not rocket science.

    You just have to be competent and be in the right place at the right time

    It’s not so easy to find a cure cancer, create and run new industries to alleviate climate change or look after the sick and the old.

    Time to tax the extremely wealthy and redistribute the excess downwards

    The banker’s have had their day in the sun.

    It’s time to move them on.

    Reply Lord Turner proposes taxing bank profits. Yet the FSA requires banks to make more profit to build their reserves so they can lend money again to business. I don’t think you have understood the Turner idea, let alone its absurdity. It would not control the large bonuses that anger you.

    • Lola
      Posted August 28, 2009 at 9:33 pm | Permalink

      It is an absurd idea.

      The reason that the banks get away with paying out all this dosh is that they are cartel supplier of a monopoly product. The answer is very simple break up the banks, especially the state banks forthwith and get a government into power in short order that will run sound money.

One Trackback

  • By Charities applaud support for bank tax | World News on August 27, 2009 at 2:09 pm

    […] “The government says it wants the banks to lend more money to business. The regulator says the banks need to have more cash, capital and reserves before they can lend more to business. The best way for them to get more cash, capital and reserves is to make more profit. Now if they make more profit it is proposed they should pay more tax, removing the extra profit from contributing to the cash and capital,” wrote Redwood on his blog. […]

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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