Jolyon Maugham has put forward an interesting argument on his blog. He has argued that the Coalition government's plan to restrict the use of losses by banks is a £10 billion cash grab over the years 2015 - 2020. He bases this idea on the fact that the losses are not foregone, but have simply had their use deferred. That was explained in a government briefing, here. Jolyon says all the plan does is bring tax payment forward, and that's just a representational con-trick.
I see Jolyon's point, but think it's wrong. It's true that right now the government is forcing the use of banking losses to be spread over a longer period than would otherwise be the case but I do not think that the issue of concern.
In my opinion the real question is why the banks should be able to use all the losses they have accumulated during the recession. The fact is that without the state support all banks have already enjoyed (and all banks have enjoyed this support because all have benefited from depositor guarantees and all have enjoyed the benefit of effective counter-party guarantees to some banks) then their would have been no profits against which to offset the losses.
So why should these losses that have already had a state subsidy given to them now be given a second subsidy by being offset against profits that would otherwise be taxable? That is the question Jolyon misses that needs to be asked.
In other words, instead of deferring £10 billion of tax payment, why not just cancel the losses that give rise to it that will one day still prevent that tax being paid unless this happens? That to me seems the right answer in the interests of tax justice and social equity.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Hi Richard,
My argument is that what the Government has done is SAID it has raided banks for £3.5bn (the remainder of the £10bn comes from similar deceits from other measures – see the links); has SAID it has reduced the deficit by £3.5bn in consequence; but IN FACT has done neither of these things.
I haven’t made any comment on whether the Govt should have been tougher or less tough on banks. But it’s certainly a consequence of my argument that the rhetoric – we have hit them for £3.5bn – is just not matched by the reality – which is that they haven’t.
Jolyon
Jolyon
I think your argument is fine as it goes, and correct in itself
I just threw in an alternative argument I have pushed on occasion since 2009 or 2010
Richard
You seem to miss the point that the banks paid interest for use of the “bail out” and had to repay the monies to the government. The government has lost no money here. If the government had just given the banks capital, never to be repaid, that would be a subsidy. In this case, there has been no subsidy.
You miss the point that the implicit guarantees were utterly unpriced
And interest was never a return on risk
I noticed e that Jolyon bas been asked to comment on the Vivien Westwood tax avoidance/ hypocrisy story. As a leading expert in tax avoidance issues that is as it should be. I wonder if you have any comments on that story, strictly for your blog.
I haven’t read the story
Not even heard of it
http://www.telegraph.co.uk/news/politics/green-party/11457076/Vivienne-Westwood-accused-of-hypocrisy-over-offshore-tax-base.html
The arrangement does indeed look like tax avoidance
And she appears to be investing in the law being changed to prevent such avoidance in future
So there’s a past mistake, by the look of it
And a willingness to invest in reform now
Is that hypocrisy or a wish to make amends? It looks like the second to me.
And remember, in 2002 almost everyone would have told her to do this and there was no counter-narrative from people like me.
And I too have changed my mind on issues since then. Wise people do. That’s not hypocrisy. That is wisdom
But if in doubt why not ask her?
Richard,
Here is a link to the story mentioned by David:
http://www.telegraph.co.uk/news/politics/green-party/11457076/Vivienne-Westwood-accused-of-hypocrisy-over-offshore-tax-base.html
This is something we need to nip in the bud. This is the type of meme that can be quite damaging to our cause.
See my comment elsewhere on this
No reason why you should have Mr Murphy.
In short, Westwood has arranged her business affairs entirely in accordance with the law, moving some of her holdings to Luxembourg.
The headline should read: “Successful entrepreneur donates to Greens. Neoliberals in sulk.”
We’re going to see a lot of this before May; they may even drag the Guardian story out again. We must all do what we can, with your blog outstanding as a beacon of hope.
See my comments elsewhere on this thread
Richard,
I am in full agreement with you. The best way for Ms. Westwood to address this issue is to shut down the Luxembourg office and repatriate her affairs, and thus taxes rightly due, to the UK.
That would be wise
It might be hard
Sorry to wade in here but I found that one of the most irritating aspects of the criticism of New Labour by the Coalescence was that they had not put money aside for a ‘rainy day’ – the rainy day being a banking crisis.
In my view, the tax payer should not be put in any position whatsoever where we have to bail out private banking because (1) they can’t do the math, (2) they deliberately sold financial products to risky customers and (3) they aimed to profit by betting against those financial instruments being sold to risky customers by insuring themselves against the losses that only they would incur = huge pay outs/profit (4) they hid the risk amongst better graded risk and (5) Greed. As the redoubtable Martin Wolf pointed out, the whole thing in 2008 was the result of a gigantic Ponzi scheme. Or, put simply – Fraud.
So to be honest I find Jolyon’s position abstract in the extreme. What should have happened (alongside the original emergency QE under Gordon Brown) was that the Government should have fully nationalised the banks it bailed out and then backed by Government credibility and proper fiduciary principles, ran those banks in competition with the remaining private banks. I think that what would have happened is that people would have moved their funds into the Government backed ones and many of those other banks would have folded. AND RIGHTLY SO. Now, that would have been the market working properly, because money would have flowed to where people’s trust would have now resided – to the newly formed Government banks.
This is why I also want to have a permanent Government ran bank – because if done properly, it would mean that if the other banks messed up again, the tax payer would not have to print money to give to private banks in the event of a crisis again because only they distribute real cash. It would also pose a threat to private banking that if they cannot get their act together, they would lose custom (except of course to the criminals who now increasingly launder their money through ‘bona fide’ banking institutions).
I feel that this arrangement would also set up a proper legal system to punish financiers for their frauds.
And lets be honest – please – the only cause of banking failures in our modern times seems to be some kind of fraud. End of.
The argument put forward by Jolyon is one of those facile ones (sorry Jolyon) masquerading as pragmatism which has all the hallmarks of the cowardly state. It enables market values to try to solve a problem, leaving aside values of natural justice. It’s a ‘something for something’ deal. Well, it’s not. It’s a something for justice and fairness deal for EVERYONE – not just for the banks and their well-heeled investors.
You are putting tax owed and money that has essentially been stolen through fraud in the same pot Jolyon. Truly Bizarre!! I’d love to hear what Michael Sandel (What Money Can’t Buy)) would have to say about Jolyon’s idea? I’m sure Mr Sandel would expertly dissect your proposals and reveal them for what they are. A palliative meant to subdue the presumption of power.
Basically Jolyon, you are saying that banks can still undertake a fraud and still get bailed by Government for that fraud. And yet at the other extreme we have politicians consigning people to food banks because these people have apparently made the wrong decisions in life that have put them in the position they are in and according to Tories like Michael Gove no-one else should be burdened with their problems. But isn’t this what the bankers have also done – made bad decisions and burdened us with their problems? But, hey, we can give them say at least only £10 billion a pop every time they mess up? Hmmmm…………
I and many others are heartily sick to death of these financial sector induced crises where afterwards we hand out parachutes to the rich and their bankers to give them a soft landing whilst ordinary working people are left to splatter on the ground, many never to rise again or if they do, not as well as they did before.
These bankers are the same people who argued that if they combined lower grade investments with higher grade investments in CDOs for example, you could spread the risk. Well it didn’t did it, as Satyajit Das has pointed out (the guy who wrote a manual for derivatives) tranching the risks actually increased the contagion in the banking sector in 2008.
These people in banking cannot be trusted anymore Jolyon. We cannot afford their wishful thinking anymore.
You have a considerable intellect Jolyon and you obviously mean well (I am not being sarcastic) , but my view is that the banking sector as it is can now only be made safe by external forces rather than from within.
Please put your considerable intellect into doing the former – could you?.
As Jolyon and I have agreed, we tackled different issues
I personally think Jolyon’s point, on misrepresenting the tax impact of a reform was valid: the presentation was misleading and that is what he sought to say
I made the quite different point that I thought the loss relief should not be available at all
On twitter Jolyon has conceded that my point is equally valid, but different
Mark, my understanding of the ‘rainy day’ is that the government should run a surplus in times of boom, so that there is money to cover the deficit in times of bust. They try to link it to Keynes’ writing. It makes sense to people who see economics as the same as the family budget. others, of course, see that differently.
But the truth is that assumes fixed quantities of money
And that’s not true
We can have as much money as we need whenever we want it
Keynes did not get that far
Mark have you actually read my post?
Jolyon
Yes I did read your blog – which I have not read before until I replied.
So I read it again and I saw that I have misunderstood what you are suggesting. David Williams (below) is quite correct about my comment.
So, without any face saving explanations or mitigation on my part (such as just being angry at the fact that the taxpayer is unlikely to get their money back; that the banks we have supported should now be in State hands; that along with Enron and Tesco our own government lies to us ad nauseam) you are entitled to a full apology from me.
Not only that, so is Richard as this is his blog and I can see that you have interacted here before somewhat in-tune with each other. So I’m very sorry to both of you as I got the wrong end of the stick.
I hope that apology is accepted. One of the outcomes for me is that I have found your blog which is very interesting and long may it continue to be so despite hot headed but well-meaning people like me getting ‘involved’.
Yours sincerely
Mark
Thanks Mark
I know Jolyon
I am sure no harm will be done
I have Jolyon’s post; I’m afraid it is unrecognisable from Mark Crown’s comment.
A question though Richard:
If she is still at it then how can she be making amends?
By asking for a change in the law
She may not be able to repatriate now: I have no idea
I made a suggestion. I am not her keeper
I don’t like tax avoiders. I thought I had a kindred spirit. Certainly when Starbucks did this you were joining in calls for a boycott. Yet here it’s different. Why?
You have boasted of speaking g truth to power, why not now? £300k to the Greens does not make amends for millions of tax avoided. I expected more from you.
You can avoid Westwood if you wish
I always have
I have said it looks like tax avoidance
What more do you want from me?
I do not speak for the Greens or any party
Hi Mark,
That’s absolutely fine. It’s easily done, especially when we feel so strongly about something. I hope I can look forward to reading your informed observations on waitingfortax.com too.
Best,
Jolyon
Jolyon
Thank you. You are far too reasonable for my own good. I promise to slow down in future.
Mark