Cutting off our nose to spite our face


A couple of days back I Tweeted against the EU’s proposed   Financial Transaction Tax (FTT, or Tobin Tax), and David Cammegh   @davidcammegh replied:

“Let them collapse or clear off because then new honest banks might take their place in a competitive market”.

Nice idea, David, but the market doesn’t work like that.

There are absolutely no Brownie Points for politicians who defend bankers, so I won’t.  Or at least, not very much.  And the EU is busy trotting out anti-banker ideas.  Not only the FTT, but now the bankers’ bonus cap, which chimes well with the resentment many of us feel against these Fat Cats who ruined our economy, yet keep coining seven-figure bonuses.  Or at least so the tabloids say.  No one will deny that many bankers did many foolish things, but the root cause of the crisis lay with politicians and national treasuries (I mean Central Banks, but the word “Bank” is misleading in this context).

It was Bill Clinton demanding home ownership for low-income American families.  It was Alan Greenspan holding interest rates too low too long, and reckoning that “asset bubbles would unwind themselves in due course”. They did, of course, but not quite in the way he’d anticipated.

The problem is that the bonus cap won’t hit the Fat Cats against whom we harbour such resentment.  They’ll just take themselves off to New York, or Singapore, or Hong Kong.  As it happens, I’ve lived in both Singapore and Hong Kong, and visited New York a number of times.  I can tell you that they are very nice places to live (and I daresay nicer still if you’re living on seven-figure bonuses).  So it’s no skin off their noses.  Equally, the big banks themselves are quite capable of transferring their Head Quarters abroad, to more friendly and welcoming jurisdictions with lower tax régimes.  I imagine that HSBC will be first in the queue, and will go back to their roots — Hong Kong and/or Shanghai.  They’ve already dropped broad hints.

But we should be worrying about the tens of thousands of people employed on moderate incomes in banks, and in the financial services industry more generally.  Many thousands of British jobs will be lost.  Meantime George Osborne and the Treasury will lose the current tax on those big bonuses.  And the tax on the major banks that move offshore.  And the income tax and VAT that would have come from all those more modest financial services jobs, now redundant.  And then to add insult to injury, the Treasury will have to find unemployment benefit and welfare to all these unemployed middle and junior managers who lost their jobs.

This would be a vast and damaging hit to GDP, to tax revenues, and to jobs.  Imagining that new banks would arrive and take up the slack is just so much wishful thinking, and frankly (sorry, David) naïve.

Then there’s the FTT, where a degree of cognitive dissonance seems to have set in.  On the one hand, they tell us, the rate is so small (at only 0.1% per transaction, or 0.01 for derivatives) that it will be trivial, and have no impact on the economy (which sounds like putting just a little sand — not very much — into your petrol tank).  On the other hand, they say, it will raise €100 billion a year (or write in your own fanciful figure) in revenue, which we can use to solve all our problems.

Clearly, these two propositions cannot both be true.  Either the tax is so small as to be trivial, in which there’s no point in doing it.  Or it will raise €100 billion — in which case it will have a large impact.  And in fact the latter looks more likely.  Of course it won’t actually raise the amount claimed, because so much business will move elsewhere.  But it will hugely damage financial services in the EU, and confirm Europe’s status as an area in long-term relative economic decline, and not worth investing in.  Unemployment, lower GDP, reduced tax revenue.  Lose-lose-lose.  This is what happens when you let ignorant ideologues play with economics.

So by all means organise hate sessions against Fat Cat bankers.  By all means stick pins into an effigy of Fred Goodwin, if it makes you feel better.  But for heaven’s sake let’s not proceed with a course of action which will shrink GDP, drive more business off-shore, cause massive lay-offs in a major British industry, and decimate Treasury tax revenues.

The media are saying that Cameron and Osborne are engaged in frantic last minute lobbying efforts to blunt the edge of the bonus cap.  Not good enough, guys.  The message is “Just Say NO”.

The government should send Brussels a message as follows: “We have decided that we cannot implement either the bonus cap or the FTT, because each would have a devastating impact on a major British industry, and on the British economy as a whole.  We do not believe that the EU has any right to interfere in the setting of remuneration and taxation in member-states in this way.  We will not recognise any adverse ruling on these issues from the ECJ or any other body, and we will not accept any penalty which the courts may seek to apply.  We propose to initiate immediate negotiations on the EU treaties designed to clarify the point that the EU in this case is acting ultra vires, and if and when those negotiations fail, we will conduct a binding In/Out referendum of the British people on the UK’s continued EU membership”.

Try it, Dave and George.  You might like it.

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15 Responses to Cutting off our nose to spite our face

  1. Heather Alibakir says:

    I wish! Of course they won’t . Frankly, to those of us of advanced years, it seems that we are the only ones left with any common sense and that things will get no better in our remaining lifetime. We have been through wars, recessions, atom bomb scares and hard times when having an orange box for a dining table gave a young couple more pleasure than having a giant TV could do now. The best way to stay sane (having tried most other things including activism) seems to be to stick our heads in the sand (or under the duvet to keep warm) and detach ourselves from a world gone mad.The era of “Stop the world I want to get off” is here again. God save my children and grandchildren from those of whatever stripe, who are in charge now and in the future. From the greed, selfishness and status- seeking which are spreading like an insidious disease.

    • Little Churchill says:

      Your comment really made me smile and you are not alone! Although I am, by the sounds of it a little younger and not been through all the same experiences, but I grew up in the 70’s and still remember all the power cuts and not being able to afford much, but the important things mattered, i.e. we were warm and fed! However, speaking with one of my Nephew’s (he is 20), feeling it was my duty to have the conversation that their parents have failed to (!), he is a HUGE fan of UKIP and knows a lot more than I initially gave him credit for, I was very impressed! Like you and many others, I fear for the future and for generations to come unless we reclaim our country and laws, thus give ourselves and future generations something to be proud of once again. My Nephew has never known what life was like before, but he is worried about his identity, culture and freedom – and if that’s how a 20yr old is feeling, it inspires me that there is hope yet! So many people are so unhappy and feel like us, but feel that they are poweless to do anything about it. Despite the popular belief that I grew up with that you shouldn’t discuss politics or religion, I now firmly believe that it is OUR DUTY to talk to not only our friends, but family and ESPECIALLY younger generations – it will be our words of knowledge, wisdom and guidance that will give them the tools they need to make informed choices and shape their future

      • Heather Alibakir says:

        Thank you Little Churchill for that grain of hope. In essence, I see your point, but when considering whther UKIP is the answer, I have to ask what other experience they may bring to the table if they become our governors, other than their ability to tell the EU where it gets off. I would wish that they would be people who by virtue of their careers, experiences, previous public office or employment can contribute wisdom and a rounded view of the population whose views will be considered before, during and after they are in power.

  2. mikestallard says:

    Two parables:
    1. When my father was a prisoner of war in Formosa under the Japanese, he told me that the cooks were always fat. Bankers, who are in the financial kitchen, are fat too. So?
    2. When the Russians invaded Poland in 1945, they stripped all the Polish industry out and transported it to Russia. I wonder if the EU is trying to strip all our banking out and take it to Paris and Frankfurt?

    • Scaredypants says:

      Of course so Mike!
      I am very ineterested in Roger’s term “Ultra vires” It applies directly to EA Officials who come out to small business and proceed to stop many practises that are within the National and European regulations. They ” change” the regulations not just to suit themselves but to drive away competition from their Corporate multi national buddies. ( one in particular) They are crucifying and driving small business into administration. It is already almost impossible to compete on a level playing field where Multi National get all the tax perks but when the regulators are on their side too?
      It is then only salt in the wound when my personal ” bailed out” business bank won’t lend to my company for growth and with a very minimum of research we find that same bank funds the ” failed UK part” of this very same multi national ( who just for extra kicks has a former MP as a director)
      I agree with Roger protecting the banks- when exactly though is anybody going to protect small business against blatant corruption ?

    • Little Churchill says:

      Totally that is what they are trying to do. We have no manufacturing anymore, bit by bit, they want to strip us of anything that ensures we can run as an independent country. Look at every other country in the EU – they are all in recession, all heavily in debt and hence they are now all at the mercy of the EU – it’s terrifying! (As all predicted in order by Nigel Farage). Yet it is only now, that the people of those countries realise what they have done in signing their soul away and are left filled with deep regret, anger and resentment.

      Love the bankers or hate them, the are ‘too international’ now, if we impose such caps, as Roger says, they will simply change location or find another way around it – no-one wins (except the EU plan of course). It’s a bit like Murdoch meeting with Farage last week – love Murdoch or hate him, he DID massive amounts to keep our £ and out of the Euro (and for that, I am grateful). Yes the phone hacking scandal was dreadful, but he owes us from that and if he can help us get out of the EU (no strings attached), you know, sometimes in business, you have to put personal preferences aside to negotiate and work with people for the mutual benefit and I believe this is what we have to do with the bankers. They broke us, but they are our best chance of mending us too!

  3. Scaredypants says:

    PS no real brownie points for guessing this Multi National is french

  4. DougS says:

    It’s not just bankers. Lots of people, in my opinion, are seriously overpaid: footballers, Hollywood stars, pop stars, basketball players, Andrew Marr, QUANGO queens, EU bureaucrats…….I could go on.

    Actually, all of the above (apart from Andrew Marr, QUANGO queens and EU bureaucrats) are in the private sector so nobody but the companies themselves should interfere with their rates of remuneration. But of course, the anti democratic EU just can’t help themselves can they? Will they extend their control to other groups that they deem ‘undeserving’? Probably!

    Let them start with the overpaid, over-expensed, over-pensioned and over-allowanced Eurocrats if they want to control remunerations.

  5. Patryk says:

    “Clearly, these two propositions cannot both be true.” Well said Roger! But your quote applies to my comment in your previous post. Ukip cannot cut taxes AND raise spending. You said that “there are other ways of financing council houses” without pointing them out. What exactly? To cut council tax and build more council houses you will have to increase other taxes… Plain maths. Roger, despite very good ideas on energy policy and taxes I will consider Ukip populists and lunatics until they make it clear that to cut taxes you also need to cut spending across the board. I’m not holding my breath though.

    • DougS says:

      Patryk: There’s a few quid to be saved by removing the UK from the EU and a few more quid to be saved by not borrowing money to give away in foreign aid. It’s not always a question of raising taxes!

      • Little Churchill says:

        I totally agree, with both your and Sean’s (below) posts. The only other thing that I would add is apart from the £53million per day, there are also secret bailouts and many other costs of the EU that are not disclosed to the public (including fines imposed), so the EU saving is massive and goes way beyond the daily contribution figure

    • Sean O'Hare says:

      There are whole swathes of the public sector that can simply be done away with. I would start with the Department for International Development, the Department of Energy & Climate Change, Department for Business Innovation & Skills, Department for Communities & Local Government, Department for Environment, Food & Rural Affairs (I could go on!) together with all their executive agencies/quangos. Have I saved enough for a tax cut? – I think so!

      • patryk says:

        Sean – I agree with you. The problem is that limiting the government is nowhere to b founs in Ukip manifesto. Everybody likes to talk about cutting taxes but they don’t lke to talk about cutting spending.

      • James says:

        To which I would add the Bank of England, the IMF, the World Bank. Then real banks would have to stand on there own feet or go under.

  6. Little Churchill says:

    “I will consider Ukip populists and lunatics until they make it clear that to cut taxes you also need to cut spending across the board. I’m not holding my breath though.” PATRYK

    It is not a problem to ask qustions, which is totally the right thing to do to educate yourself before casting a vote, especially in this day and age, but the problem with your posts are the typical jumping on the bandwagon ‘Tory’ bully-tactic of name-calling – you just can’t help yourself! What is the going rate for an ‘EU Troll’ these days?

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