Stay informed with free updates
Simply sign up to the UK banks myFT Digest — delivered directly to your inbox.
A gaggle of protesters gathered outside the Houses of Parliament last week, pushing their campaign that chancellor Rachel Reeves should impose a “windfall tax” on the UK’s banking sector.
Positive Money, a not-for-profit that organised the stunt, reckoned the Treasury could raise £14bn, just by taxing our “profiteering banks” more punitively (close to half the fiscal hole Reeves supposedly needs to fill in her Budget this month).
To ram the message home there were masks with likenesses of the bosses of Britain’s big four banks, inflatable champagne bottles, swag bags. It was all very Occupy Wall Street — just with a handful of people instead of the many thousands that joined marches in the angry wake of the 2008 global financial crisis. But make no mistake: there is a swell of support for cracking down on banks — including from within the left-leaning ranks of Reeves’ own governing party.
Thankfully for the likes of Lloyds, NatWest, Barclays and HSBC, it is far from certain that Reeves will take up the suggestion. Nor should she. If the UK government is to have any chance of reviving its pitch to be a pro-business, pro-growth administration, her Budget cannot afford to punish success.
More particularly, there are three reasons why going after Britain’s banking sector, which 17 years after the height of the financial crisis has finally recovered a decent level of profitability, is a bad idea.
First, it wouldn’t be justified. Banks have not benefited from a windfall in any normal sense. Yes, interest rates were higher for a while, allowing them to widen their margins slightly, but Bank of England base rates peaked at just over 5 per cent, hardly high by historic standards, and are already on their way back down.
Second, banks — no matter what protesters might believe — are not exactly raking it in. On the basis of return on equity numbers that barely reach 10 per cent, the big banks are far less profitable than sectors such as technology or pharmaceuticals.
Third, banks already pay taxes at a higher rate than other companies, as a long-lasting relic of the post-2008 policy backlash. A balance sheet levy of up to 0.21 per cent was charged to help recoup the cost of bailouts. An 8 per cent supertax was added in 2016. Both taxes still operate simultaneously, though the rates have fallen — the levy is now charged at up to 0.1 per cent of a portion of the balance sheet; and the supertax has been cut to 3 per cent (meaning big banks pay corporation tax at 28 per cent, instead of the standard 25 per cent).
If Britain is serious about growth, it needs strong banks with the capacity to reinvest in financing the economy, not whipping boys.
Europe as a whole, but the UK in particular, has seen a marked shrinkage in the status of its banks — and their share of economic financing relative to foreign competitors, notably US groups. A recent unpublished study by Oliver Wyman found the market share of UK capital markets and advisory work conducted by UK banks had declined to 30 per cent from 36 per cent in 2012. In the US and Japan, domestic banks command a market share of more than 70 per cent.
It is, of course, easy to understand why those on the left of the Labour party, and much of society as a whole, still harbour distrust of the banking sector. Consciously or otherwise they trace a link back from today’s broken public services to the years of austerity that followed the 2008 crisis.
As is so often the case with scandals that cause pain but where little actual illegality occurred, there was no easy way to hold the villains of the piece responsible in law. None of the bank bosses of 2008 became heads on stakes. And indeed some of the very few bankers initially convicted of crimes connected with the crisis have had verdicts overturned.
Tom Hayes, previously imprisoned for conspiring to manipulate Libor rates. but then cleared by the Supreme Court after serving more than five years in jail, is one of them. Now he is suing UBS, his former employer, for $400mn, on the basis that the Swiss bank hung him out to dry and deprived him of vast earnings potential. His lawyer blamed the bank for directing his behaviour and now wants it to be financially punished. (UBS has not commented.)
In an odd sense, that aligns this wealthy ex-investment banker with the card-carrying socialists who are still arguing for the banks to be bashed — though I’m not sure the mask-wearing protesters in Westminster would quite see it like that.