The financial sector isn't the powerhouse of the UK economy. It's more like a Wendy house

HMRC figures show a drastic reduction in Corporation Tax contributions since the financial crash – on average just £3.3billion a year, even when the paltry Bank Levy is included. To put this in context, the finance sector shelled out £14 billion in bonuse

Five years ago today, following a frantic weekend of negotiations, during which Alistair Darling later admitted cash machines were within hours of being switched off, the Government announced that British banks would be part-nationalised to stave off collapse. We bought an 82% stake in RBS and 40% in Lloyds/HBOS at a combined cost of £37 billion. 

It was part of a wider bailout package which cost £132.89 billion of public money – the equivalent of £2,000 from each man, woman and child in the UK. Former Governor of the Bank of England Mervyn King quipped a year later: "To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many.”

Half a decade later and the situation has changed little. According to the most up-to-date figures from the National Audit Office, £118.86 billion (or 89 per cent) of the original bailout is still outstanding. The interest payments alone cost the public purse £5 billion a year. Whilst some of the costs are recouped through the Government charging banks interest and fees, the NAO estimates it has still amounted to “a transfer of at least £5 billion from taxpayers to the financial sector” since the crisis.

There are others reasons the many are still propping up the few. Take for instance the 'too-big-to-fail' subsidy, whereby banks can borrow money cheaply because creditors know the Government (read: taxpayer) will bail them out if things go wrong. It's worth a fortune - £235 billion to Britain's four biggest banks between 2008-2011, according to research by the New Economics Foundation.

Or look at financial service's incongruous exemption from VAT. It's understandable that some items are VAT-free, for example: children's clothes, public transport, medical and funeral costs; but why are we exempting the services of a derivatives trader? According to HMRC itself, this anomaly costs us another £5bn a year. The International Monetary Fund has warned this special treatment of the banking sector means it is under-taxed and has allowed it to grow “too large”. 

Banks have also become adept at gobbling up public money intended for the real economy. This not only artificially inflates their profit and pay, but acts as a tourniquet on growth. Despite having drawn down £17.6bn since the Funding for Lending Scheme began just over a year ago, banks' lending to business contracted by £2.3bn.  

The cumulative effect is that banks live in a welfare dependent bubble, cushioned from feeling the effects of the crisis they caused. Financial sector growth has far outstripped the rest of the economy since the crisis: in 2012 for example, if you take out the fines and the one-off costs of adjusting to regulatory changes, the profits of the five biggest banks' rose 45% to £31.5 billion. The economy virtually flat-lined during the same period.

Yet whilst the financial sector likes to think of itself as the powerhouse of the UK economy, in terms of the tax it pays, it's more of a Wendy house. HMRC figures show a drastic reduction in Corporation Tax contributions since the financial crash – on average just £3.3billion a year, even when the paltry Bank Levy is included. To put this in context, the finance sector shelled out £14 billion in bonuses to top staff last year alone.

Meanwhile, the public have paid in service cuts, job losses and tax rises. Government spending will be cut by 9.1%, £141bn in real terms, during the course of this Parliament, chronically impacting on the poorest who rely on services most. Whilst the top rate of tax was cut, giving millionaires a tax break, the VAT increase to 20% has been shown to hit the poorest 10 per cent of the population more than twice as hard as the richest 10 per cent.

This stark injustice has prompted other countries to take action. It is the explicit reason why Germany, France, Italy, Spain and seven other European countries are implementing the Financial Transaction Tax of between 0.1% - 0.01% on stocks, bonds and derivatives that will raise up to £30 billion. It is the only policy to have emerged post-crisis that will ensure those responsible pay to clean up the mess they caused.

Unfortunately, the UK Government has not only refused to join in, but has taken the proposal to the European Court of Justice. It's a worrying indictment of their priorities, compounded two weeks ago when they launched another legal challenge, this time against the EU banker bonus cap. This was followed by news that the Government is scrapping the 1 per cent pay rise due to NHS staff in April. As an example of misplaced priorities it is difficult to beat.

Unless of course you look at ministers’ treatment of the poorest – the bedroom tax, benefit cap and punitive sanctions for those who miss Job Centre appointments - these policies are all signs that the coalition is determined to end what they call ‘the something for nothing’ culture. It’s a shame they won’t apply the same logic to bankers.

A protestor from the 'Robin Hood Tax Campaign,' dressed as 'Robin Hood,' holds a fake budget box above the Houses of Parliament. Image: Getty

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

Getty
Show Hide image

Why Boris Johnson is Theresa May's biggest Brexit liability

The Foreign secretary is loved by Eurosceptics and detested by EU negotiators. 

Boris Johnson is a joke in Brussels but not the funny kind. He is seen as the liar who tricked Britain into leaving the European Union.

Since his election as a MEP in 1999, Nigel Farage has sucked EU money into his campaign to get the UK out of the EU. But the contempt reserved for Boris is of a different order - because he should have known better.

Johnson has impeccable European pedigree. His father Stanley was an MEP and influential European Commission official. Unsurprisingly, Stanley is a Remainer as is Johnson’s brother Jo.  

The fury reserved for Johnson and his betrayal is of a particularly bitter vintage. Johnson was educated in the European School of Brussels in the leafy and well-heeled suburb of Uccle, where, years later, Nick Clegg lived when he was a MEP.

The contempt stems from his time as the Daily Telegraph’s Brussels correspondent. Fake news is now big news. Many in the self-styled “capital of Europe” believe Boris pioneered it.

Johnson was an imaginative reporter. Many still discuss his exclusive about the planned dynamiting of the European Commission. The Berlaymont headquarters stands untouched to this day.

Rival British hacks would receive regular bollockings from irate editors furious to have been beaten to another Boris scoop. They weren’t interested in whether this meant embroidering the truth. 

Johnson invented a uniquely British genre of journalism – the Brussels-basher. It follows a clear template.

Something everyday and faintly ridiculous, like condoms or bananas, fall victim to meddling Brussels bureaucrats. 

The European Commission eventually set up a “Euromyth”website to explode the pervasive belief that Brussels wanted you to eat straight bananas.  Unsurprisingly, it made no difference. Commission staff now insist on being called "European civil servants" rather than bureaucrats.

Commission President Jean-Claude Juncker was so worried about negative headlines that he stalled energy efficiency legislation until after the referendum.

When he shelved sensible laws to restrict excessive energy consumption on toasters and hairdryers, he was rewarded with a Hero of the Week award by the German tabloid Bild, which had developed a taste for Boris-style hackery.  

Many in Brussels draw a direct line from Johnson’s stories to the growing Eurosceptism in the Conservatives, and from that to Ukip, and ultimately Brexit.

To make matters worse, Johnson was the star of the Brexit campaign. His performance confirmed the view of him as an opportunistic charlatan.

The infamous £350m a week bus caused outrage in Brussels, but not as much as what Boris did next.

He compared the EU to Adolf Hitler. Boris knows better than most how offensive that is to the many European politicians who believe that the EU has solidified peace on the continent. 

European Council President Donald Tusk was furious. “When I hear the EU being compared to the plans and projects of Adolf Hitler I cannot remain silent,” said Tusk, a Pole.

“Boris Johnson crossed the boundaries of a rational discourse, demonstrating political amnesia,” he declared, and added there was “no excuse for this dangerous blackout”. It was the first time a leading EU figure had intervened in the referendum campaign.

After the vote for Brexit and his failed tilt at the premiership, Johnson was appointed foreign secretary, to widespread disbelief.

When the news broke, I received a text message from my Italian editor. It read: “Your country has gone mad.” It was the first of many similar messages from the Brussels press pack. 

“You know he told a lot of lies to the British people and now it is him who has his back against the wall,” France’s foreign minister Jean-Marc Ayrault said. Germany’s foreign minister, Frank-Walter Steinmeier called Johnson “outrageous”.

Could Johnson jeopardise the Brexit negotiations?  He can damage them. In November, he was ridiculed by European ministers after telling Italy at a Brussels meeting that it would have to offer tariff-free trade to sell prosecco to the UK.

European Union chiefs moved earlier this week to quell fears they would punish Britain for Brexit. Prime Minister Theresa May had threatened to lure investment away from the EU by slashing corporation tax rates in her speech last week.

Juncker and Joseph Muscat, the prime minister of Malta, which will chair the first Brexit negotiations, both insisted they was no desire to impose a “punitive deal” on the UK. Donald Tusk compared May’s speech and its “warm words” to Churchill. 

An uneasy peace seemed to have been secured. Enter Boris. 

Asked about comments made by a French aide to President Francois Hollande, he said, "If Monsieur Hollande wants to administer punishment beatings to anybody who chooses to escape, rather in the manner of some World War Two movie, then I don't think that is the way forward.”

The European Parliament will have a vote, and effective veto, on the final Brexit settlement. Its chief negotiator Guy Verhofstadt lashed out at Johnson.

“Yet more abhorrent and deeply unhelpful comments from Boris Johnson which PM May should condemn,” he tweeted.

Downing Street wasn’t listening. A spokeswoman said, “There is not a government policy of not talking about the war.”

And just as quickly as it broke out, the new peace was left looking as shaky as ever. 

 

James Crisp is a Brussels-based journalist who is the news editor of EurActiv.com