Here's an excellent bit of politicking by Boy George:
The banks will now be made to stump up £2.5 billion in extra taxes on their short-term borrowing this year as the chancellor believes banks are now stable enough to be able to pay the full amount. When the special bank levy was first introduced it was to be phased in slowly with banks only expected to pay £1.7 billion in 2011.
'That is a substantial sum of money that will help the government and help Britain deal with its budget deficit,' Osborne said on BBC radio this morning.
So it looks as if he's sticking it to the boys in the City, doesn't it?
Nothing of the sort.
1. The UK government has engineered things so that banks are now making £60 billion a year interest margin, instead of the £40 billion a year they were making before the 'credit crunch' (this is a combination of lots of different things too complicated to go into), see Table B3.1 here.
2. UK banks must have made a profit of about £2 billion under the QE shenanigans, because the Bank of England overpaid by about 1% when it bought back UK government bonds held by UK banks, so all the levy does (in the first year) is claw most of that back again.
3. The UK government has yet to call in the remaining £253 billion in soft loans and guarantees for UK banks, only £57 billion has been repaid so far (Special Liquidity Scheme and Credit Guarantee Scheme). As the interest margin which banks are earning on that £253 billion is rather more than 1%, the bank levy of £2.5 billion a year doesn't even claw that back. It'd make more sense for the government to hike the interest rate they are charging the banks by a couple of per cent to encourage them to pay it back (the banks have got still got £150 billion QE 'money' sloshing about at the Bank of England, so they could repay half of it tomorrow).
4. The government is also mucking about with the corporation tax system. They've already reduced capital allowances from 25% to 20% and have announced that the top rate of corporation tax will be reduced from 28% to 24% over the next few years, which they claim will be revenue neutral. So companies with a lot of plant and machinery will end up worse off and banks, who claim precious little in the way of capital allowances, will be better off.
5. While I suppose £2.5 billion is not to be sniffed at, it pales into significance against the £150-billion annual deficit or the total tax burden of £500 billion a year. And the extra £20 billion the government hopes to get off you and me by increasing National Insurance by 2% and increasing VAT by 2.5%, which will place yet more burden on productive businesses (at least half, possibly two thirds of VAT is borne by the producer, i.e. employers and employees*) but barely affect banks (who are VAT-exempt).
I'm beginning to think that Moonbat has a point (even though his logic is faulty).
* Even arch-Home-Owner-Ist and financial sector cheerleader Alistair Heath in the City AM admits this.
UPDATE: Nick Robinson points out that the banking levy will raise less than the bank bonus tax did for the year it was running. They must be laughing all the way to the, er...
A Rose By Any Other Name...
23 minutes ago
24 comments:
Why is the financial sector in collusion with goverment all smoke and mirrors, you always have to look for the story behind the story. You certainly know you stuff excellent post.
In nay event the banks won't pay this levy - their customers will. It's a stealth tax, as well as wot says.
J, it's not just banks and government who are in collusion, it's the EU, the large corporates, the landowners, civil servants etc etc. You could call it 'crony capitalism' or 'corporatism' or 'fascism' if you wished. It has nothing to do with proper democratic free market capitalism.
L, banks are a cartel and are making super-profits anyway 9see my lengthier posts on pricing strategies of monopolies and cartels at the weekend). This levy won't affect their customers one bit.
Regarding point 4, you should probably go into more detail on the Annual Investment allowance being reduced from £100,000 per annum to £25,000 per annum as of 1/4/2012 and the writing down allowance being reduced further to 18% (8% special rate pool) as the reason for asset heavy businesses being hit at the expense of financial services industries which given their scale probably don't even classify new computers as capital expenditure as the amount is not material.
On point 5. I'd have to say the likelihood of a large payrise for the 11/12 year is diminished by VAT going up whilst the NI & tax threshold changes for me beat the rate increase and give me an extra £25 a month or so (2 employments is a wonderful thing, maybe i'll go get a 3rd one too), better than a kick in the teeth but still a long way to being able to afford some of the nicer things in life.
SW, those are further good points, but the reduction to 20% has already happened and the changes you mention are prospective (as indeed is the cut to 24% corporation tax).
I'm glad to hear about your £25 tax saving, but without the NI and VAT increases, the chances are your income would have risen by more than that.
"I'm glad to hear about your £25 tax saving, but without the NI and VAT increases, the chances are your income would have risen by more than that."
Pretty much true, I don't know exactly how much we're gonna get in tax credits either. I can figure out the base amounts & estimate the taper off due to income but there is also an overpayment which is being clawed back (from before the income disregard went to £25,000 from £2,500) With the disregard still set at £10,000 for next year I'm thinking it may be worthwhile going for some extra evening or weekend work somehow to benefit from this extra income with no 41% withdrawal in the 1st year.
SW, aha, I thought the £25 was after adjusting tax credits. I bet that these fall by at least £25 a month as well. Even though the reduction won't kick in until the next year because of income disregard, it is still a loss (continued on page 94 of Tax Credits Manual).
Just calculated it based on best estimates of final income for this year. £20 worse off on the tax credits - paid every 4 weeks not monthly BUT better of than their estimated payments for next year by £33 every 4 weeks (they put this on the award notice) This is before taking into account the clawback of overpayment which for some reason they decided would place us in financial hardship and didn't do this year....
In terms of work in an accountancy practice though, those with lots of asset heavy businesses on their client list are likely to suffer from the knock on effect when their clients go tits up!
MW - I was getting at the Cartel. If it wasn't one they might compete, and then they would find it harder to charge their customers.
L, that's the whole point.
1. Competitive industries have low profit margins so they have to increase prices if costs increase (or go out of business).
2. Monopolies can set price to maximise profits, so can 'pass on' some of higher input costs in terms of higher prices (but then the quantity demanded goes down).
3. Cartels work by excluding competition/restricting supply to maximise profits, so price is set where demand curve meets supply [vertical line]. An increase in their costs is borne entirely by members of the cartel, it just eats into their 'rent'.
L, that's the whole point.
1. Competitive industries have low profit margins so they have to increase prices if costs increase (or go out of business).
2. Monopolies can set price to maximise profits, so can 'pass on' some of higher input costs in terms of higher prices (but then the quantity demanded goes down).
3. Cartels work by excluding competition/restricting supply to maximise profits, so price is set where demand curve meets supply [vertical line]. An increase in their costs is borne entirely by members of the cartel, it just eats into their 'rent'.
Cartels can be monopolies too.
L, there is of course an overlap. but take it from me, a tax on bank assets (as opposed a tax on bank transaction) would be borne almost entirely by the banks.
e.g. a monopolist passes on some of the increase in the marginal cost per unit, but this does not apply to an increase in fixed costs.
"Tax on bank assets" - their shareholders - who are people too.
L, so what? Bank shareholders are also monopolists (as they own shares in a monopoly).
Mark I am old enough to remember that the common market as it was called then was to be a free trade agreement between those that were members, to see it morphed into this monstrous undemocratic totalatarian state that is totally corrupt and all the things you describe in your reply, all I can say is this can only end badly.
MW - I thought you thought banks were a cartel?
Mind you I'm with you on Moonbat. You can hear him spitting that one out as he wrote it. Sounds a bit like a mid 70's lefty polemic. If only he'd step back and stop being so lefty he might get to liberty and see the banks in that light.
L, I admit to having used the terms loosely and non-scientifically, so let me start again:
The point is, banks' income is in excess of their costs because they have a government-protected privileged position. A fixed rental charge (or 'tax') on the value of that privileged position cannot be passed on to customers (it would be borne by senior employees and shareholders).
We know it cannot be passed on, because the value of the privilege is merely a balancing figure between actual income and actual costs, and you cannot 'pass on' a balancing figure.
Actually the bank levy is not a tax on bank profits but a tax on bank liabilities
covered here
http://docs.google.com/viewer?a=v&q=cache:ocJgx344XfMJ:www.hm-treasury.gov.uk/d/junebudget_bank_levy.pdf+hm+treasury+bank+levy&hl=en&gl=uk&pid=bl&srcid=ADGEESjqSGDN0JF9zSnDliZ6F8s_VUUVavymOu_H2_BDKKNxlouFeJGhJibCmpN4yWHVFPV6TGf6MHxbCSxYgOLHg4pvgjzo1mJwgWTvu0e4Nhszq-zRYhgiSq2XZzZV9CoI-IKQYmKC&sig=AHIEtbRi9FtR5VZ3ZS7FRxgv4XgUPF7H2g
and here
http://www.bbc.co.uk/news/business-12391532
badly reported here
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8311115/George-Osborne-levy-attacked-by-banks-and-Ed-Balls.html
and here
http://www.dailymail.co.uk/news/article-1354757/Tax-bank-profits-permanent-pledges-George-Osborne.html
MW - I do get it. I really do.
I think the point that I am making - badly - is that monopolies and cartels, eventually make us all poorer, even the cartels and monopolists. That is, as you say, bank shareholders are the monopolists/cartelisers equally with the employees. I think I am saying that they are ultimately being impoverished as well, since monoplolies/cartels aleays lead to wealth destruction.
In a sense we ARE 'all in this together'.
Keynes was right and wrong - 'In the end we are all dead'. Yes and no. Human action is a continuum and therefore we are not all dead in the end, someone will always come after us, and in that sense if we destroy wealth now we are destroying it for our children as well.
Monopolists/cartelisers are destroying wealth for the generations to come - their children as well as ours.
(Actually it's getting a bit late and it's time I was off home for homemade Scotch Broth and salad....) byeee
Den, exactly. Whether we call it a tax on 'assets' or on 'liabilities' is actually neither here nor there, as in the grander scheme of things, with banks, assets = liabilities. it is not a tax on profits.
So it is a 'good tax' in my book, but the rate is pathetic, it's about 0.075%.
When I'm in charge it'll be more like 2% or 3% (i.e. the scoop off the entirety of their 'rental income', the money they can make in their sleep on the interest rate spread). In return, there'll be no corporation tax on profits, PAYE on salaries or income tax on dividends.
L, agreed. Problem is, there is a Home-Owner-Ist elite (bankers, politicians* etc) who do really well out of the system and they have persuaded us that's what good for them is good for us.
* Or 'Bilderbergers' for the benefit of James Higham. These are all just different names for the same caste.
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