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.

Picture: ANDRÉ CARRILHO
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Leader: Boris Johnson, a liar and a charlatan

The Foreign Secretary demeans a great office of state with his carelessness and posturing. 

Boris Johnson is a liar, a charlatan and a narcissist. In 1988, when he was a reporter at the Times, he fabricated a quotation from his godfather, an eminent historian, which duly appeared in a news story on the front page. He was sacked. (We might pause here to acknowledge the advantage to a young journalist of having a godfather whose opinions were deemed worthy of appearing in a national newspaper.) Three decades later, his character has not improved.

On 17 September, Mr Johnson wrote a lengthy, hyperbolic article for the Daily Telegraph laying out his “vision” for Brexit – in terms calculated to provoke and undermine the Prime Minister (who was scheduled to give a speech on Brexit in Florence, Italy, as we went to press). Extracts of his “article”, which reads more like a speech, appeared while a terror suspect was on the loose and the country’s threat level was at “critical”, leading the Scottish Conservative leader, Ruth Davidson, to remark: “On the day of a terror attack where Britons were maimed, just hours after the threat level is raised, our only thoughts should be on service.”

Three other facets of this story are noteworthy. First, the article was published alongside other pieces echoing and praising its conclusions, indicating that the Telegraph is now operating as a subsidiary of the Johnson for PM campaign. Second, Theresa May did not respond by immediately sacking her disloyal Foreign Secretary – a measure of how much the botched election campaign has weakened her authority. Finally, it is remarkable that Mr Johnson’s article repeated the most egregious – and most effective – lie of the EU referendum campaign. “Once we have settled our accounts, we will take back control of roughly £350m per week,” the Foreign Secretary claimed. “It would be a fine thing, as many of us have pointed out, if a lot of that money went on the NHS.”

This was the promise of Brexit laid out by the official Vote Leave team: we send £350m to Brussels, and after leaving the EU, that money can be spent on public services. Yet the £350m figure includes the rebate secured by Margaret Thatcher – so just under a third of the sum never leaves the country. Also, any plausible deal will involve paying significant amounts to the EU budget in return for continued participation in science and security agreements. To continue to invoke this figure is shameless. That is not a partisan sentiment: the head of the UK Statistics Authority, Sir David Norgrove, denounced Mr Johnson’s “clear misuse of official statistics”.

In the days that followed, the chief strategist of Vote Leave, Dominic Cummings – who, as Simon Heffer writes in this week's New Statesman, is widely suspected of involvement in Mr Johnson’s article – added his voice. Brexit was a “shambles” so far, he claimed, because of the ineptitude of the civil service and the government’s decision to invoke Article 50 before outlining its own detailed demands.

There is a fine Yiddish word to describe this – chutzpah. Mr Johnson, like all the other senior members of Vote Leave in parliament, voted to trigger Article 50 in March. If he and his allies had concerns about this process, the time to speak up was then.

It has been clear for some time that Mr Johnson has no ideological attachment to Brexit. (During the referendum campaign, he wrote articles arguing both the Leave and Remain case, before deciding which one to publish – in the Telegraph, naturally.) However, every day brings fresh evidence that he and his allies are not interested in the tough, detailed negotiations required for such an epic undertaking. They will brush aside any concerns about our readiness for such a huge challenge by insisting that Brexit would be a success if only they were in charge of it.

This is unlikely. Constant reports emerge of how lightly Mr Johnson treats his current role. At a summit aiming to tackle the grotesque humanitarian crisis in Yemen, he is said to have astounded diplomats by joking: “With friends like these, who needs Yemenis?” The Foreign Secretary demeans a great office of state with his carelessness and posturing. By extension, he demeans our politics. 

This article first appeared in the 21 September 2017 issue of the New Statesman, The revenge of the left