Whatever you think of Polly Toynbee, her latest column in The Guardian makes a lot of sense.
Nothing has changed. Obscene pay is back. Ahead lie years of hard labour to repay debts while Krug flows in the City. No regret, no shame, no punctured hubris. Banks seem beyond the control of mere government. Instruments exist to rein them in – taxation, regulation, law – but their threats to abscond make them virtually untouchable. History may mark this as the moment when financiers passed beyond democracy, thumbing their nose while rubbing our nose in it. How puny the G20 deal looks, delaying bonuses for three years when everyone wanted them banned.
Inside Revenue & Customs there is growing concern at the billions that could be lost from banks avoiding taxes for decades to come. Tax gatherers are eager for the Treasury to take urgent action in November’s pre-budget report on two vital issues. As banks move into profit, you might expect them to pay tax. You’d be wrong. They can spread their colossal losses forward forever, offsetting them against tax they owe. All the banks have billions to offset, including those we own. Merrill Lynch put £16bn of its sub-prime losses through Britain, so it may pay no corporation tax in the UK for 60 years. No wonder Revenue & Customs is fuming.
What could be done? There should be a cap on the sum that banks can offset against tax: other EU countries only allow losses to be spread over three years. Tax law says a major change of ownership means a company forfeits its old tax losses. Surely that is the case with Lloyds, RBS, Northern Rock and all the smaller banks eaten up by Santander? No, there’s a loophole if losses were in their subsidiaries. But, says Richard Murphy, director of Tax Research UK, a small change in the law could fix it. It would be worth, he says, a minimum of £10bn – or much more. So let’s see if Alistair Darling has the nerve to challenge bank profits in November.
Here’s the second question. The Treasury is drawing up a new code of conduct for bank tax affairs. It will oblige any bank operating in the UK to obey not just the letter but the spirit of the law. No more arrangements designed just to avoid tax. No more providing the funds and advice for clients to set up elaborate tax avoidance. No artificial offshore devices, rotating money through countries purely for tax purposes.
But here’s the catch: the code is voluntary, and so far no bank has agreed to sign. Instead banks have called in lawyers who cite the 1936 Duke of Westminster’s judgment that gives anyone the right to minimise their tax. (He had made a fancy tax-free arrangement for paying his gardener.) On their very high horse, bankers proclaim it’s against Magna Carta principles: they say the code gives arbitrary discretion to tax collectors to decide what is an artificial device. They want nothing to do with the spirit of the law, only statutes. That way they can hire the best brains to ferret out loopholes to keep one step ahead of Revenue & Customs. If they won’t sign voluntarily, they know there is a problem because you can’t legislate the “spirit” of a law. However, you could have a general anti-avoidance principle for all, such as the Australians use. Twice MPs tried to introduce one as a private member’s bill, but the government rejected it.
What else could stop bank profiteering? Adair Turner’s suggested Tobin tax would reach right into the wicked heart of the matter by taxing every transaction at the point where they skim the cream off everything, mostly people’s pension funds. Goldman Sachs’s profits show how a shrunken banking sector coins it as an effective cartel: the market doesn’t operate as there is no competitive pricing.
Don’t imagine this is all high finance: down on the high street things are worse than ever. Which? magazine this week launched its campaign Britain Needs Better Banks. To claw back self-induced losses and bonuses from ordinary punters, banks have stretched the gap between the base rate and what they charge for mortgages to an historic high. That we now own a huge slice of the mortgage market makes this extra- shocking. Banks exploit the fact that so many mortgage-holders are trapped – with less equity in their property they can’t shop around, and charges for moving mortgages are astronomic. Northern Rock is worst of all, charging 4.79% for its trapped “customers”. Which? wants the Office of Fair Trading to look at a market that has become a cartel. Meanwhile “shoddy products” are still being mis-sold, relying on people very rarely switching bank.
Next week the Financial Services Authority reports on some of this. Will the government act? The state itself has a conflict of interest between taxpayers who want their money back fast, and citizens who need protecting from predatory behaviour by the banks we own. Profits are so high that Which? says RBS has made more from its mortgages in the last six months than in the previous year.
The sins of the banks are legion. But beware siren voices saying banks should have been allowed to go bust, tempting though it looks. Small-staters seize on popular disgust at bonuses to suggest the perfect market will correct itself if only regulators and Keynesians stand clear. That theory was tested to destruction in 1929 but those nostalgic for President Hoover think we should have tried it again, with double the soup kitchens.
If Labour has been pusillanimous about banks and bonuses, just wait for the new Tory MPs arriving soon. A survey by the Almanac of British Politics finds that a bare Conservative majority will bring in 140 Tory MPs from business, 50 from the City. The greater the Conservative majority, the more City financiers will come in. It’s doubtful they really think we are all in this together. How odd that these will be the beneficiaries of public outrage at bankers’ greed, the debts they caused and the plight we are in.
Labour has failed hopelessly to capture the public mood on grotesque pay at the top. If ever there was a time for an emergency super-tax it’s now when jobs are lost, homes repossessed and pain needs to be fairly shared. Even Peter Mandelson this week said we must not “return to the bonus culture that led banks astray in the past”. We shall see in the pre-budget report if the government dares use the instruments it has. In tax, that means a cap on offsetting previous losses and the power to force banks to sign an anti-tax avoidance code. Otherwise, the only lesson seems to be that lessons are never learned. Poly Toynbee, The Guardian.
Still I doubt Toynbee has her pulse on the public mood – if the opinion polls are to be believed we’re about to elect a Tory government which as Toynbee points out won’t do anything to upset city bankers.
