The business world is making a bad fist of presenting its case. We are back in the usual territory. The public mood says profits are bad. Senior business people are fat cats. Bonuses are wicked forbidden fruit. Oil companies are making huge profits out of high prices. Banks are beyond the pale.
There are, of course examples of corporate greed. The private sector has some bad companies that let down customers and staff. I have no time for bail outs of banks by taxpayers, but then I was the one MP who recommended a different course of action to tackle the Credit Crunch at the time that would have avoided equity bail outs. I want the governemnt to get our money back by selling the banks and their assets as soon as possible.
Let us look at a couple of figures we have been given recently. We have been told that Shell made $20 billion of profit last year. We have learned that banks will have to pay an annual £2.5 billion levy on the size of their balance sheets and been told by some this is not enough.
Oil company reporting is bizarre. They mainly report the net income. They never tell us how much tax they pay in total on all the oil and product they handle. Shell’s $20 billion sounds large. Deep down in the figures you can discover that their turnover was a huge $368 billion last year. They admit to paying $20 billion of taxes, yet if you added up all the oil taxes concealed in their turnover figure it would come out as a much higher figure.
Producing net profits of under 6% of turnover is what they need to pay the bills for new wells, for new equipement and the other capital items they require to carry on in business. It is hardly excessive. The role of profit is not merely to reward the risk takers, the shareholders. It is also to pay for the future jobs and investments needed by the business.
The true story of £1.30 a litre petrol is the 80p a litre the UK government takes in tax. The Oil companies should announce, when they announce their profits, the far larger sums they have collected for the world’s governments. It would give a sense of perspective.
The banks are to pay an extra £2.5billion of tax a year based on the size of their balance sheets. Some suggest they should pay more than this. Let us suppose they had their way and the government doubled the tax it has announced. If we assume around one third of this is tax that will have to be paid by RBS and LLoyds/HBOS, where the taxpayer is a large shareholder, we will see that we are partly taxing ourselves. As the aim should be to sell these banks back to the private sector as soon as possible, the tax will lower the price we get for these assets. As profitable banks sell at around 12 times earnings, taking another £800 million off the earnings of the two we own would lower their total business value by around £10 billion. The current tax is already in the price of the shares, which remains low compared to their pre Credit Crunch levels. Taxing banks more is popular, but from the taxpayers’ point of view it is not all win win.