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Brexit has allowed the banks to get off Britain's naughty step Brexit has allowed the banks to get off Britain's naughty step
(1 day later)
It is almost a decade since the financial crisis and barely a day has gone by without banks being in the headlines, invariably for the wrong reasons.It is almost a decade since the financial crisis and barely a day has gone by without banks being in the headlines, invariably for the wrong reasons.
Only last week, RBS – 73% owned by the state since its bail out in 2008 – announced it was taking a £3.1bn hit as a result of a case brought by the US Department of Justice over the way the bank packaged and sold mortgages during the great housing bubble that preceded the crash.Only last week, RBS – 73% owned by the state since its bail out in 2008 – announced it was taking a £3.1bn hit as a result of a case brought by the US Department of Justice over the way the bank packaged and sold mortgages during the great housing bubble that preceded the crash.
RBS is just one of many. Banks have been fingered for, among other things, money-laundering, rigging the money markets, and mis-selling payment protection insurance. The total amount paid out by banks for various malfeasances since the financial crisis stands at £250bn and rising.RBS is just one of many. Banks have been fingered for, among other things, money-laundering, rigging the money markets, and mis-selling payment protection insurance. The total amount paid out by banks for various malfeasances since the financial crisis stands at £250bn and rising.
Despite being serial offenders, banks have been the big beneficiaries of quantitative easing. The bulk of the money created by the Bank of England found its way into asset markets. Share prices have been rising and City bonuses will be good this year.Despite being serial offenders, banks have been the big beneficiaries of quantitative easing. The bulk of the money created by the Bank of England found its way into asset markets. Share prices have been rising and City bonuses will be good this year.
The even better news for the banks is that they are no longer hated. Far from it. Much of the concern about how the UK will survive outside the EU has centred on the future of the City. For years, the banks have been trying to find a way of getting themselves off the public’s naughty step. Brexit has provided them with an opportunity that has been seized with relish. The City has played the post-referendum game masterfully.The even better news for the banks is that they are no longer hated. Far from it. Much of the concern about how the UK will survive outside the EU has centred on the future of the City. For years, the banks have been trying to find a way of getting themselves off the public’s naughty step. Brexit has provided them with an opportunity that has been seized with relish. The City has played the post-referendum game masterfully.
Roll the clock back 18 months or so to the time of the 2015 general election and it was a different story. Then, a commonly held view – at least for those not working in the City – was that the UK suffered from having a too-dominant financial sector. There was distaste for the way a poorly controlled financial sector had wrecked the economy with their speculative excesses and left others to pick up the bill. The recession that the banks caused and the austerity that resulted created the sense of “them and us” – the notion of an unbalanced and unequal Britain – that led to Brexit.Roll the clock back 18 months or so to the time of the 2015 general election and it was a different story. Then, a commonly held view – at least for those not working in the City – was that the UK suffered from having a too-dominant financial sector. There was distaste for the way a poorly controlled financial sector had wrecked the economy with their speculative excesses and left others to pick up the bill. The recession that the banks caused and the austerity that resulted created the sense of “them and us” – the notion of an unbalanced and unequal Britain – that led to Brexit.
Contrast that mood with today when there are daily bulletins about when and under what circumstances HSBC might move 1,000 jobs out of the City to other European capitals, and constant demands that the government secures passporting rights to allow UK authorised institutions to operate freely across the EU27. A couple of years back, there would have been shouts of “good riddance” from voters had a bank said it was thinking of shifting staff to Frankfurt or Paris. There would have been queues of people volunteering to drive the bus to Heathrow. Now the idea is seen as a national calamity. Where the focus was on the harm the banks did, now the emphasis is on the loss of highly paid jobs and service-sector exports.Contrast that mood with today when there are daily bulletins about when and under what circumstances HSBC might move 1,000 jobs out of the City to other European capitals, and constant demands that the government secures passporting rights to allow UK authorised institutions to operate freely across the EU27. A couple of years back, there would have been shouts of “good riddance” from voters had a bank said it was thinking of shifting staff to Frankfurt or Paris. There would have been queues of people volunteering to drive the bus to Heathrow. Now the idea is seen as a national calamity. Where the focus was on the harm the banks did, now the emphasis is on the loss of highly paid jobs and service-sector exports.
John McDonnell, Labour’s shadow chancellor, made the point in his party conference speech last year that the UK’s financial services industry was at the heart of the Brexit negotiations. “Our financial services have been placed under threat as a result of the vote to leave,” he said.John McDonnell, Labour’s shadow chancellor, made the point in his party conference speech last year that the UK’s financial services industry was at the heart of the Brexit negotiations. “Our financial services have been placed under threat as a result of the vote to leave,” he said.
To be fair to McDonnell, he went on to say that there should be no return to the “casino economy” that caused the 2008 crash, but the banks can live with that. McDonnell is never going to be the City’s staunchest ally. But it is a sign of how the banks have won a long PR war that even those who were once their sternest critics are now looking out for their interests.To be fair to McDonnell, he went on to say that there should be no return to the “casino economy” that caused the 2008 crash, but the banks can live with that. McDonnell is never going to be the City’s staunchest ally. But it is a sign of how the banks have won a long PR war that even those who were once their sternest critics are now looking out for their interests.
The end of banker bashing is frustrating for those who have been campaigning for a financial transactions tax, an idea first floated by the US economist James Tobin in the early 1970s but which only started to look like a realistic proposition since the crash.The end of banker bashing is frustrating for those who have been campaigning for a financial transactions tax, an idea first floated by the US economist James Tobin in the early 1970s but which only started to look like a realistic proposition since the crash.
An FTT has two aims: it is supposed to reduce the amount of churn in financial markets and hence make them less unstable; and – because activity is so enormous – it is designed to raise substantial amounts of money for governments even if the levy leads to a fall in the number of trades.An FTT has two aims: it is supposed to reduce the amount of churn in financial markets and hence make them less unstable; and – because activity is so enormous – it is designed to raise substantial amounts of money for governments even if the levy leads to a fall in the number of trades.
Critics of an FTT – of whom there are plenty in the financial sector – say it would only work if every country adopted it and that the banks would simply pass on the cost of the tax to their customers. It would make raising finance harder and more expensive.Critics of an FTT – of whom there are plenty in the financial sector – say it would only work if every country adopted it and that the banks would simply pass on the cost of the tax to their customers. It would make raising finance harder and more expensive.
Even so, a group of 10 EU countries – including the eurozone’s big four of Germany, France, Italy and Spain – have been working on plans for an FTT and last week Pierre Moscovici, the EU commissioner for the economy, said he thought an agreement was within reach.Even so, a group of 10 EU countries – including the eurozone’s big four of Germany, France, Italy and Spain – have been working on plans for an FTT and last week Pierre Moscovici, the EU commissioner for the economy, said he thought an agreement was within reach.
A forthcoming paper for the Robin Hood campaign by the former City banker Avinash Persaud says the government could build on an existing financial transaction tax – stamp duty on share trades – to create a more broadly-based levy that would raise an additional £5bn a year. For a Treasury still running a hefty budget deficit, that is a tidy sum. A forthcoming paper for the Robin Hood Tax campaign by the former City banker Avinash Persaud says the government could build on an existing financial transaction tax – stamp duty on share trades – to create a more broadly-based levy that would raise an additional £5bn a year. For a Treasury still running a hefty budget deficit, that is a tidy sum.
Persaud takes issue with those who say that a small tax would raise the cost of capital. He notes that financial institutions charge 2% on average for the deals they do for their customers, a rake off that has not changed in 100 years and which dwarfs the proposed starting rate for an FTT.Persaud takes issue with those who say that a small tax would raise the cost of capital. He notes that financial institutions charge 2% on average for the deals they do for their customers, a rake off that has not changed in 100 years and which dwarfs the proposed starting rate for an FTT.
“All of the efficiency gains since then, as a result of the new information technologies, globalisation, and other developments, have been captured by those who run the industry and not shared with consumers. This has been one of the single largest contributors to worsening income inequality.”“All of the efficiency gains since then, as a result of the new information technologies, globalisation, and other developments, have been captured by those who run the industry and not shared with consumers. This has been one of the single largest contributors to worsening income inequality.”
Persaud also says that it is now harder to avoid paying the FTT no matter where it is levied. “The new transparency on beneficial ownership, along with anti-money laundering rules make it significantly easier for tax authorities to tax transactions by residents in securities which are domiciled anywhere, like derivatives.”Persaud also says that it is now harder to avoid paying the FTT no matter where it is levied. “The new transparency on beneficial ownership, along with anti-money laundering rules make it significantly easier for tax authorities to tax transactions by residents in securities which are domiciled anywhere, like derivatives.”
In reality, the main arguments against an FTT are political rather than technical, as the banks know well. Their message to the UK government is “be nice to us or we’ll take chunks of our business elsewhere”. Their message to other EU governments is “you only benefit from Brexit relocation if you kick the idea of an FTT into the long grass”.In reality, the main arguments against an FTT are political rather than technical, as the banks know well. Their message to the UK government is “be nice to us or we’ll take chunks of our business elsewhere”. Their message to other EU governments is “you only benefit from Brexit relocation if you kick the idea of an FTT into the long grass”.
The City will continue to thrive after Brexit. It is big enough and flexible enough to cope. Some jobs will migrate abroad but the carefully-orchestrated idea that there will be tumbleweed billowing through Canary Wharf five years from now is risible. Still, you have to admire the banks. It has taken a decade of lobbying but they are as influential as ever.The City will continue to thrive after Brexit. It is big enough and flexible enough to cope. Some jobs will migrate abroad but the carefully-orchestrated idea that there will be tumbleweed billowing through Canary Wharf five years from now is risible. Still, you have to admire the banks. It has taken a decade of lobbying but they are as influential as ever.
• This article was amended on 30 January 2017 to correct the name of the Robin Hood Tax campaign