Charge banks 10% tax for guaranteeing their deposits

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The Chief Executive of Northern Rock sent a note to all his staff yesterday afternoon saying:

I am delighted to tell you that the Chancellor has just announced that all deposits with Northern Rock are fully underwritten by the Government and Bank of England with immediate effect.

The Chancellor's statement makes it clear beyond any doubt that all savings in Northern Rock are safe and secure.

Consequently anybody who is in a queue outside a branch, or who is trying to get access to an online account, can be fully reassured there is no case for concern whatsoever.

Bloody Hurrah!

Note that last comment. This is the cry of an anguished man let off the hook by government.

In effect the Chancellor has now given all bank customers a guarantee that just about whatever their bank does their money is safe. Much of the risk has gone out of banking as a result and has been assumed by the State.

Risk transfer always has a price. I suggest that in this case a charge can be created for the risk the State is taking on. I'd suggest that it is an extra 10% corporation tax to be paid by any bank offering deposit taking services in the UK.

Fair, don't you think?

How much extra will the state get? Well, between them HSBC, RBS, Barclays, HBOS and Lloyds TSB declared current UK tax liabilities of £6.5 billion in 2006. This was at 30%.

At 40% they'd have paid £8.7 billion.

That's an extra £2.2 billion they'd have paid.

Chicken feed compared to the deposits on which they now have no risk.

PS 19.9.07 This blog is covered by the Guardian here.

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