Why the banks' threats of moving abroad are empty

These threats allow banks to run rings around the government -- but are of questionable credibility.

Talk to a banker about financial sector taxes and they'll have to call you back from their Blackberry en-route to the airport, the rest of the company in tow, quite prepared to never set foot in the country again to avoid your unnecessary meddling. The world is their oyster -- Frankfurt, Hong Kong, New York they'll tell you -- so stop the talk of Robin Hood Taxes, or capital reserve requirements, or you'll soon be seeing tumble weed clogging up the escalators at Canary Wharf.

From a lobbyist's perspective, you can see why we increasingly hear banks threaten to move their business overseas -- it has given them the excuse they need to run rings around the government. Cue the crescendo around Sir John Vicker's interim report into banking regulation a couple of weeks ago. Cue the government's frustration, when the terms it set as part of the Project Merlin deal for banks to lend more to businesses didn't work. And whilst Ed Balls' should be commended for calling for a banker bonus tax to help tackle youth unemployment, I suspect it is also one of the reasons he limited it to a rather modest £2billion.

But putting the bank lobbyist's view aside, this story just doesn't add up from from virtually any perspective. Firstly, you have to ask what exactly "relocating overseas" means. Leading the charge, Standard Chartered and HSBC have both said they may move abroad. Their threats create an image of packing up entire trading floors, wealth management divisions and investment arms, but in both cases they are only talking about their corporate HQs and a small number of head office staff.

As a Financial Times editorial recently said:

Such threats should be faced down, not just because they are unreasonable but because they are of questionable credibility.... Were a bank such as Barclays to shift its headquarters, the impact on the UK would surely be minimal as it would still do much of its business and pay taxes in the country.

Andrea Leadsom MP, a former senior executive at Barclays and Conservative member of the Treasury Select Committee, agrees:

One or two of them might change their corporate headquarters for tax purposes but if they do go we probably won't even notice. There won't be a great outflow of workers and Canary Wharf won't turn into a ghost town.

Distractions about corporate relocation aside, banks still argue that increasing taxes will make the City less competitive and would lead to a drip-drip loss of business. And they would have us believe the government's new bank levy is evidence of a worrying step in that direction. But let's be crystal clear: we are in no danger of overburdening the banks.

The costs of the new bank levy will be largely off-set by a decrease in corporation tax, which is on course to be the lowest rate in the G7 by 2014 at 23 per cent. Our rules on writing off future tax payment against previous losses are a major boon, as Barclays so clearly demonstrated by paying a shocking £113m of tax on £11.6b of profit. Other countries are not so generous, or perhaps foolhardy, as a special Reuters report explains: "Swiss tax losses can generally be carried forward for seven years, U.S. federal tax losses for 20 years, but in the UK or Jersey, there is no time limit."

But here is the mother of them all -- a multi-billion pound reason why banks would be mad to move away: credit rating agencies such as Standard & Poors know the UK government (read: taxpayer) will not let banks fail because they would bring the rest of the economy down with them. This means lending to banks is a one-way bet and so their credit rating improves, which in turn allows them to borrow money more cheaply. Sound trivial? Andrew Haldane, executive director of financial stability at the Bank of England, said last year: "The average annual subsidy for the top five banks over these years [2007-2009] was over £50 billion -- roughly equal to UK banks' annual profits prior to the crisis." At the height of the crisis, the subsidy was worth £100bn.

Most countries are simply not capable of offering this kind of support. Those who are capable may not be willing to risk having to fund a bail-out. If banks do choose to move from the City of London's safety net, they are likely to have to accept lower credit ratings making borrowing more expensive.

Besides the favourable tax environment and epically-proportioned credit card we offer to banks based in the UK, there are many other factors that give London the edge: stable financial infrastructure, lack of corruption, ease in raising capital, lawyers and crucially, our location. Banks could not afford to shift to New York and miss out on European clients, and business so conveniently located in a time zone half way between Manhattan and the other major markets in Asia. Nor could they afford to ignore our pool of highly skilled workers, who in turn are attracted by the culture, language, world class education and variety of things to spend their money on.

According to a recent Global Financial Sector Index, London didn't come near the top for its financial sector competitiveness, it was number one. So next time the City of London complain they are hard done by, show them this report -- which incidentally, they commissioned.

In fact, you could argue that it is the banks that are overburdening us. HSBC's balance sheet is already bigger than the entire GDP in the UK, Barclays' is roughly equal. The Bank of England governor, Mervyn King, and others have questioned whether we really want to be carrying that weight on our shoulders -- a weight that could crush us next time things go wrong.

Neither the government or opposition should be held hostage to old arguments that banks are the powerhouse of our economy. Two years ago they lost this honour when their engine failed and we were forced to pump in more than a trillion pounds of public money to get it started again and we are still paying to keep it running today.

Nor should politicians shy away from ensuring banks pay to repair the damage they have caused, for example through a Robin Hood Tax, because of hollow threats that the financial sector will move their business overseas. By paying their fair share in taxes, banks can once again work in the interests of society. At the moment it's the other way round.

Simon Chouffot is a spokesperson for the Robin Hood Tax Campaign

 

Simon Chouffot is a spokesperson for the Robin Hood Tax campaign and writes on the role of the financial sector in our society.

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Rising crime and fewer police show the most damaging impacts of austerity

We need to protect those who protect us.

Today’s revelation that police-recorded crime has risen by 10 per cent across England and Wales shows one of the most damaging impacts of austerity. Behind the cold figures are countless stories of personal misery; 723 homicides, 466,018 crimes with violence resulting in injury, and 205,869 domestic burglaries to take just a few examples.

It is crucial that politicians of all parties seek to address this rising level of violence and offer solutions to halt the increase in violent crime. I challenge any Tory to defend the idea that their constituents are best served by a continued squeeze on police budgets, when the number of officers is already at the lowest level for more than 30 years.

This week saw the launch Chris Bryant's Protect The Protectors Private Member’s Bill, which aims to secure greater protections for emergency service workers. It carries on where my attempts in the last parliament left off, and could not come at a more important time. Cuts to the number of police officers on our streets have not only left our communities less safe, but officers themselves are now more vulnerable as well.

As an MP I work closely with the local neighbourhood policing teams in my constituency of Halifax. There is some outstanding work going on to address the underlying causes of crime, to tackle antisocial behaviour, and to build trust and engagement across communities. I am always amazed that neighbourhood police officers seem to know the name of every kid in their patch. However cuts to West Yorkshire Police, which have totalled more than £160m since 2010, have meant that the number of neighbourhood officers in my district has been cut by half in the last year, as the budget squeeze continues and more resources are drawn into counter-terrorism and other specialisms .

Overall, West Yorkshire Police have seen a loss of around 1,200 officers. West Yorkshire Police Federation chairman Nick Smart is clear about the result: "To say it’s had no effect on frontline policing is just a nonsense.” Yet for years the Conservatives have argued just this, with the Prime Minister recently telling MPs that crime was at a record low, and ministers frequently arguing that the changing nature of crime means that the number of officers is a poor measure of police effectiveness. These figures today completely debunk that myth.

Constituents are also increasingly coming to me with concerns that crimes are not investigated once they are reported. Where the police simply do not have the resources to follow-up and attend or investigate crimes, communities lose faith and the criminals grow in confidence.

A frequently overlooked part of this discussion is that the demands on police have increased hugely, often in some unexpected ways. A clear example of this is that cuts in our mental health services have resulted in police officers having to deal with mental health issues in the custody suite. While on shift with the police last year, I saw how an average night included a series of people detained under the Mental Health Act. Due to a lack of specialist beds, vulnerable patients were held in a police cell, or even in the back of a police car, for their own safety. We should all be concerned that the police are becoming a catch-all for the state’s failures.

While the politically charged campaign to restore police numbers is ongoing, Protect The Protectors is seeking to build cross-party support for measures that would offer greater protections to officers immediately. In February, the Police Federation of England and Wales released the results of its latest welfare survey data which suggest that there were more than two million unarmed physical assaults on officers over a 12-month period, and a further 302,842 assaults using a deadly weapon.

This is partly due to an increase in single crewing, which sees officers sent out on their own into often hostile circumstances. Morale in the police has suffered hugely in recent years and almost every front-line officer will be able to recall a time when they were recently assaulted.

If we want to tackle this undeniable rise in violent crime, then a large part of the solution is protecting those who protect us; strengthening the law to keep them from harm where possible, restoring morale by removing the pay cap, and most importantly, increasing their numbers.

Holly Lynch is the MP for Halifax. The Protect the Protectors bill will get its second reading on the Friday 20th October. 

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