Banks get a sharp slap on the wrist
The UK government has announced a new, higher, levy on banks. The Chancellor says this is a 'fair contribution.' Is he right?
Yesterday the Government did something popular: it announced that it was taking more money from the banks. HSBC, Barclays and the Royal Bank of Scotland (among others) are feeling the pain today.
The Chancellor, George Osborne, surprised everyone by going on the radio and saying that UK banks were doing better than expected, so he was going to take an extra £800 million from them in a tax called the 'bank levy'.
This was a scheme announced by Labour after huge public outrage about the way that banks appeared to be partly to blame for the global economic crisis, but getting away with it scot-free.
Osborne's original levy was just £1.7 billion phased in gently. Yesterday that changed. The new levy will be introduced in one blow and it will be £2.5 billion.
Normally this would be announced in the Budget next month. Mr Osborne explained he wanted to help banks to plan their bonus payments in advance. He also reminded them to lend around £1 billion to small business.
What is going on? Insiders say the Government was sympathetic to the banks last year. Conservative politicians said banks weren't really to blame for the economic crisis, any more than car-makers are responsible for road accidents.
The public was angry, however, and the Government launched a review called 'Merlin' to look at how banks could help our shattered economy. In charge was the former head of Barclays Bank, a devout Christian called John Varley, famous for telling the BBC: 'It starts by saying sorry. It starts by admitting things went wrong.'
Stung by the economic crisis of 2007 the banks had stopped taking risks. So they started to make money again. Under their own rules, when they make money they pay bonuses. The biggest bonuses go to the biggest earners.
Early this year it emerged that the top men in all the banks (all of them are men) could get amounts from £2 million to £8 million. None apologised. They felt they had earned it.
Politicians, say the analysts, are like schoolteachers. The banks behaved badly. John Varley was shocked. David Cameron decided to remind banks who was in charge. Yesterday he was sending a signal: give yourselves bonuses if you like but we will take them away again.
The worst 'offender' is the current head of Barclays, Bob Diamond, who is up for the highest bonus this year: £8 million. Governments are expert at public relations. Is it a coincidence that the increased tax the Government has announced is exactly 100 times this amount?
- Does it make sense to punish a whole industry for a global crisis?
- What does tax money provide and what do you think is a 'fair contribution'? How much would you pay?
- Write a letter from George Osborne to a top banker explaining why the banks must be punished. Then write the banker's reply.
- Find out how much the UK banking sector makes in a year. What percentage of that is £2.5 billion?
Some People Say...
“Picking on banks is foolish - we need them to save our economy.”
What do you think?
Q & A
- I thought the Tories liked rich bankers?
- Many feel their economic cuts have hit the poorest and the middle classes the hardest. So, as Simon Maughan of MF Global says, 'There's clearly a desire to be seen to be bashing the bankers again.'
- Chancellor George Osborne rides out against the rich!
- It'll certainly help when he faces the Shadow Chancellor, Ed Balls, in Parliament. It'll give him some ammunition.
- And how large are these bonuses?
- Take the investment bank Goldman Sachs. The average bonus - on top of salary - is £269,000 p.a, while the average income in the UK is around £27,000.A Many don't think so, and the government is vulnerable here, with 23 out of 29 cabinet members reckoned to have assets worth over 1 million. They say 'We're all in it together' but some are more in it than others.