The banks should pay for their own rescue
The UK government has spent a fortune of our money rescuing the banking sector. Doesn’t it seem reasonable to recover the money from the sector itself. Is it time for a new windfall tax on banks?
The buoyant profits from Barclays and HSBC were possible only because the government used money to ensure the sector survived. The losses at Northern Rock, Lloyds and Royal Bank of Scotland would be worse if those banks had been allowed to collapse. As they have all gained from state intervention, should they not pay for it?
But however fair a tax on banks might seem there are snags. First, a tax on profits would hit Barclays, HSBC and Standard & Chartered – banks that did not take money directly from the government. There are no profits yet to tax at the banks owned by the state - and a penal tax in future will reduce their value, making the state less likely to recover its investment.
Yet all banks gained from restoring stability to the system. True, Barclays might have gained market share if HBoS had been allowed to fail but it is more likely the collapse of one major bank would risk bringing down even the relatively sound ones. The rescue of Northern Rock, RBS and HBoS has thus benefited all banks.
Further, the Bank of England’s loan programme and the sharp reduction in interest rates has benefited even banks that raised no capital from the state.
However, the whole economy – manufacturers, retailers and citizens – has benefited from the rescue of the banking system and restoration of stability. That would warrant a tax across the whole community therefore, which is what an increase in general taxes will mean.
But it still seems that the banks have got off lightly from last year’s rescue and ought to pay directly. Taxing the bankers is impractical so taxing the banks should be considered. A turnover tax might be possible or a long-term increase in corporation tax that would extend long after the government has sold its stakes.
The Tories, under Mrs Thatcher, were the last party to impose a windfall tax on banks. As they are likely to be in government again when the banks report the profits that reap the rewards of their rescue, perhaps they are the party to propose the new tax on banks.
August 5th, 2009 at 11:15 am
Actually HSBC would have hardly made any profit at all if the £4.7 billion cost of the rights issue had been included on the balance sheet. I thought the Government was going to toughen up the the rules on companies’ financial reporting but has all that been forgotten now in their political need to hype up rate of gowth of “the green shoots”?
October 19th, 2009 at 10:07 am
[...] it time for a new windfall tax on banks?” asked this blog back in the summer. It seems so. The Westminster press briefing is that the chancellor is [...]