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.

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Have voters turned against globalisation? It depends how you describe it

Brits are more positive about diversity than Sweden. 

New research shows that citizens across Europe are pessimistic about the future, distrustful of government and other political institutions, ambivalent at best about multiculturalism, and increasingly sceptical about the role of the European Union.

We wanted to understand the extent to which Europe’s citizens favour a "closed" rather than an "open" outlook and perspective on politics, economics and society. Making globalisation work for ordinary people in the developed world is one of the defining challenges of the 21st century. Globalisation’s popularity and political viability is both a pre-condition and a consequence of making it work, but mainstream politicians seem to be failing to persuade us to embrace it, to the detriment of democratic institutions and norms, as well as their own careers.

The decision of the British people to leave the European Union has been perceived as yet another step back from globalisation and a rejection of an "open" outlook that favours international co-operation in favour of a more closed, inward-looking national debate.

There’s certainly a strong element of truth in this explanation. The referendum campaign was deeply divisive, with the Leave campaign playing heavily on concerns over immigration, refugees and EU enlargement. As a consequence, the "liberal" Leavers – those who wanted to leave but favoured a continuing a close economic relationship with the EU along with free movement of labour – appear to have been side-lined within the Conservative party.

Our results are by no means uplifting, but it’s not all doom and gloom. While there’s no doubt that opposition to certain features and consequences of globalisation played an important role in driving the Leave vote, Brits as a whole are just as open, outward-looking and liberal-minded, if not more so, than many of our European neighbours.

First, we asked respondents in all six countries the following:

“Over recent decades the world has become more interconnected. There is greater free trade between countries and easier communication across the globe. Money, people, cultures, jobs and industries all move more easily between countries

“Generally speaking, do you think this has had a positive or negative effect?”

Respondents were asked to consider the effects at four levels: Europe as a whole, their country, their local area, and their own life.

Overall, British voters are overwhelmingly positive about globalisation when described in this way - 58 per cent think it has benefited Europe and 59 per cent think it has benefited Britain. More than half (52 per cent) think it has benefited their local area, and 55 per cent think it has benefited their own life.

One might respond that this question skates over questions of immigration and multiculturalism somewhat, which are the most controversial features of globalisation in the UK. Therefore, we asked whether respondents thought that society becoming more ethnically and religiously diverse had changed it for the better or for the worse.

Overall, 41 per cent said that ethnic and religious diversity had changed British society for the better, while 32 per cent said it had changed for the worse. That’s a net response of +9, compared to -25 in France, -13 in Germany, and -17 in Poland. Brits are even more positive about ethnic and religious diversity than Sweden (+7) – only Spanish respondents were more positive (+27).

There’s a long way to go before ordinary people across the developed world embrace globalisation and international cooperation. Despite the apparent setback of Brexit, the UK is well-placed politically to take full advantage of the opportunities our increasingly inter-connected world will present us with. It would be a mistake to assume, in the wake of the referendum, that the British public want to turn inwards, to close themselves off from the rest of the world. We’re an open, tolerant and outward-looking society, and we should make the most of it.

Charlie Cadywould is a Researcher in the Citizenship Programme at the cross-party think tank Demos. His writing has been published in peer-reviewed journals as well as the national media.