For those who want to know why banks won't be paying corporation tax for some time to come, can I recommend a report I wrote last year for the TUC? It's here.
As the TUC said at the time:
Despite being rescued by taxpayers during the crash, UK banks will avoid paying £19 billion of tax on future profits by offsetting their losses during the financial crisis against their tax bills. This is equivalent to more than £1,100 for every family in the UK, a TUC report says today (Monday).
The TUC report - The Corporate Tax Gap - says that as well as benefitting from an £850 billion bailout from taxpayers and the Bank of England during the recession, banks are able to offset their £19 billion [cash value] of tax losses between 2007 and 2009 against paying tax on future profits.
The report, authored by tax specialist Richard Murphy, has calculated this double subsidy from the accounts of five UK high street banks - HSBC, Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS (later Lloyds Banking Group) - and HM Revenue & Customs (HMRC) data.
That's why we're not all in it together.
And that's why we need to restrict the use of these losses in the future. There is no way banks should get double relief on them - once when we bailed them out because they made these losses and again in the future when they return to profitability. We could do this by simply banning their carry forward now for offset against future profits. It's a one line new piece of law that is needed.
It's the simplest reform to recover cash the government could make - billions in all. So why isn't it doing it?
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Oh how we’d all love to offset last year’s overspending against this year’s income tax.
One rule for big business, another for the public.
I think you are overlooking two important points here.
Firstly, Barclays didn’t take any government bailout, and I don’t believe HBSC did either.
Secondly, both RBS and Lloyds gave a lot of equity to the Treasury as consideration for their bailouts. They’ve already paid for it. To make them pay again by disallowing their losses for tax purposes would be ridiculous, unless of course the Treasury is willing to give its shareholdings back to the shareholders.
are there actually any ethical banks we can use? unfortunately having a bank account is a requirement for getting paid these days!!
@paul challinor
Try the Coop
Or Triodos
@Gerald
I’m sorry – I simply disagree
Lloyds and RBS gave up equity because they were broke – that’s not a payment, that’s just a reflection of their financial state
And none has paid for the havoc they caused – wrecking our economy
The reality is simply that they did more harm to the Uk economy than any otehr group collectively in history – your micro perspective utterly fails to recognise that reality
Why do you choose to ignore the facts?
What “facts”?
Just like in the US the government will generate a healthy return from its shareholdings in RBS and Lloyds.
You haven’t addressed my comment about HSBC and Barclays. They weren’t so bust that they needed a government bailout. Are you condemning them just for being a bank?
@Gerald
It is not possible for the Uk to have made a healthy return on the banks – they destroyed large swathes of the economy and nothing can compensate for that
HSBC and Barclays were equally responsible – and survived only because of government guarantees – even if they di not need equity
They’re as in hock to the Uk government as RBS and Lloyds – they could not have survived without it
Indeed, they still do, of course, enjoy that support and cannot do without it
The idea is a good one but if the banks can not claim back the losses they will need evenmore capitalistion which in turn will reduce the amount available for lending.
So maybe the way forward is to restrict the amount of losses that can be claimed in any one year. Not so sexy as a headline but it means that the banks will have to suffer along with us all over a longer period. Restricting total losses claimed to £1bn per annum is a starting place for discussion.
Gerald – can I just point out that thousands of SMEs gave equity to banks in return for funding. In the majority of those cases, it wasn’t because the businesses were broke or even because they wanted an equity partner, it was simply because the banks decided to take what they wanted. The equity swap did not result in less bank charges, less interest and, the only economy in taxes was when (as so often happened), the banks put the original SMEs into pre-pack administration and rolled them into newco’s belonging to bank subsidiaries. In those instances yes, less tax was paid because of a loss. But invariably, it was a complete loss to the owner of the SME. However, in terms of equity swap = a tax saving, it didn’t happen.
It’s the goose, gander situation and the bank have decided to be both. They don’t want to pay taxes, they do want to pay bonuses. They don’t want Government interference, they do want tax payers money.
I really think any alien coming to this planet, and watching how a tiny minority of sociopaths have persuaded the whole world they are entitled to own and control the entire wealth of the planet, would think we were all completely bonkers! Why do we allow it? Because our Government Ministers are not as strong as our bankers.
And by the way Richard, while we could undoubtedly, as a nation, recoup billions if the banks paid their tax bills, I sincerely believe we could recoup many more billions by recovering the huge amounts lost to money laundering by major banks. I am very hopeful a current police and FSA investigation into one major bank will ultimately prove that point.
Richard
That doesn’t stack up. Two banks did not take the bailout and two did. Two have therefore paid for their bailout already and two have not. Its not possible to treat all four the same way because two will be prejudiced (either way), and will be protected accordingly by the law.
I don’t agree that tax relief on losses can be retrospectively removed from those who took the bailout, as the terms of their bailouts was negotiated and agreed and did not contain removal of tax relief. Basic law of contract. Its legally impossible to withdraw loss of tax relief to both Lloyds or RBS as a result. Not so difficult to withdraw it though to Barclays or HSBC, but to do anything retrospectively would undermine the entire tax system so is very unlikely to succeed.
I’m not saying that your suggestion is a bad one, just that it looks impossible to implement!
Paul
I totally agree. A phased limitation of using up cumulative tax losses over say 3 to 5 years (and no reason to limit it to banks only) makes a lot of sense.
@ Gerald
I would recommend reading Private Eye’s ‘In The City’ from No. 1280. This details Barclay’s use of Fed funds to ahem ‘tide it over’ during the crucual period when everything was heading south. Lloyds, HBoS, and HSBC were also involved but not quite on the scale of Barclay’s involvement. What would have happened without this ‘help’…well we’ll never know will we?
@ Gerald
Barclays got almost half a trillion dollars in aid from the Federal Reserve.
Also Barclays can happily borrow from other institutions safe in the knowledge that if they can’t pay the good old UK taxpayer will come running to the rescue. This gives them an unfair advantage and helps them make even more money at our expense.