I’ve just read the draft legislation on this, available here. It’s good.
It covers obvious tricks e.g. disguised employments and loans. It also has a very targeted anti-avoidance provision. The definition of a bank works — as does that of an employee, I suspect.
But the real sting in the tail is that not only will banks be paying this additional tax — they also get no corporation tax relief on it — something I proposed on Monday. This does provide a real sting in the tail to this charge.
Good for Darling.
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Doesn’t the short chargeable period ending on 5 April 2010 sort of take the sting out of the tail?
Hmmm – will be interesting to see the Laffer Curve in action on this one – at least for those that can’t wait until 6 April
But after 5/4 the banker pays 50% tax – which helps
Any banker that has moved in the past 3 years will be on a contractual “guaranteed bonus” which will fall outside the scope of this. And I think we all know of several institutions that have already awarded bonuses in advance of this, which also fall outside the scale of it.
Any other bank would be wise to not bother paying a bonus this year. But we can guess what that will mean: prepare for a huge hike in bankers’ basic salary in 2010 or a double bonus season next year, couched as a performance bonus for 2010 plus a loyalty bonus for not quitting in 2009 when a bonus wasn’t awarded.
It shouldn’t have happened like this – the government didn’t bail out every bank and there are plenty of other banks who neither wanted or needed an explicit government guarantee. There are also some banks – not the biggest payers by any means – who acted responsibly both prior to and during the credit crunch.
The government should have fully nationalised those banks that couldn’t survive without the guarantee and then control those banks in the way they want to. Instead, they are trying to herd cats that don’t even belong to them.
Paul Krugman likes the bonus tax.
I think it’s good politics but it would have been nice to see more action on the structural problem – how we would finance another bailout (which is probably going to be needed in the next few years, the way the bubble is reinflating) without imposing huge costs on taxpayers. A financial transactions tax or a corporation tax surcharge are both viable options – the UK govt could build up a fund with those that could be used to bail out the banks, should the need arise.
“the UK govt could build up a fund with those that could be used to bail out the banks”
Here’s a different idea. Why doesn’t the UK fully nationalise a bank and let it do safe, traditional banking with no exposure to the fancy stuff.
Then announce that in future no other bank will ever be bailed out. Isn’t that simpler?
@mad foetus
We could say we would not bail out other banks
But we could not mean it
So why say it?
It would be dishonest to do so
@mad foetus I like the nationalisation idea but the markets would not take a commitment from the govt not to ever bail out any other banks again as credible. After all, given that the alternative was the complete collapse of the financial system – and possibly the end of Western civilisation as we know it – the banking bailout begins to look rather cheap. It’d certainly pass a Treasury Green book cost-benefit analysis.
Why not just cut ie either scale back or disquality the payment of interest for tax relief from FINCOs? There would be little impact on prudent banks while getting the highly leveraged ones to either pay back for their imprudence and provide a buffer against a future bailout; it would remove some of the additional, and already disproportionate, tax burden shouldered by normal people, and even arguably encourage FINCOs to mainatin more moderate levels of leverage in the future without the need for further regulation.
Howard,
I don’t disagree with you: clearly 2008 could have been pretty close to anarchy on the streets and by and large, the government did the right thing at the right time.
However, there were good banks and bad banks and it seems clear that the outcome of the intervention has not really distinguished between the good and the bad. That in itself seems wrong to me and not something that is being addressed now.
The lesson that has been taken from this crisis appears to be that governments undewrite all banks and so how can governments seek to exercise control over them all, given that banking is a competitive global business adept at jumping through hoops.
I am not sure how this rewards those banks that were previously prudent and punishes those that were reckless. And if it does not make such a distinction, how can it be in any way “just”.
The thing to do is seperate the important and low risk retail banking, from the high-stakes casino banking. Guarantee the former and let the latter swing in the wind when they come a cropper. Make sure that the essential financial infrastructure is insulated from risk.
This all makes sense except that the banks want to use all the money in the current accounts on the casinos and they will resist this.
But let’s be clear. Any of these strategies or the ones suggested by Howard, Mad or David will reduce banking profitability. You gamble less, you get less when you win. But this country is just not big enough to afford to insure these kind of risks, which is why our finances are currently in difficulties. Another banking crisis will push us over the edge.