It may not be everyone’s choice of how to spend the hottest evening of the year, but on Monday night Boris Johnson gave a speech at the British Bankers’ Association dinner.
Since he’d been invited by his former advisor and “old friend” Anthony Browne, now Chief Executive of the BBA, we could anticipate it would not be a searing critique of all that’s gone wrong with the financial sector. Hot yes, hotbed of progressive thought, no.
But Boris’ speech nonetheless got my blood boiling. In taking a swipe at the proposal for a European Financial Transaction Tax – every City fat cat’s favourite bug bear at the moment – he chronically misrepresented how it works.
Eleven countries – including Germany, Italy, France and Spain – are due to implement the tax of between 0.01% – 0.1% on transactions of stocks, bonds and derivatives by 2014. It could raise those countries involved £30billion. Boris called on “German, Italian and Spanish banks to move their HQs here to London so that they can escape the tax on their operations around the world”.
The main problem with this argument is that it’s factually incorrect. The crucial point is that no matter where in the world transactions take place the tax can still be captured. If a German bank moves its HQ to London, scarpers to New York or sets up on a beach in the Cayman Islands, transactions involving German stocks, bonds and derivatives will still be captured.
It is not the first time Boris has misrepresented how the FTT works. In February 2012 he warned against the UK implementing the tax saying: “Do they not understand that our crucial wealth providers will be on the first flight out to the US and Far East if their ill thought out plans succeed?”
He seems not to have noticed that the UK already has an FTT – the Stamp Duty on shares – that raises the Government £3billion a year and didn’t lead to any significant loss of business. This is because, like the European proposal it is designed to capture trades wherever they take place – in fact 40% of its revenue comes from non-British residents.
Seven of the 20 largest stock exchanges in the world have successful FTTs. Around 40 countries raise approximately £25billion a year from such taxes – they are proven revenue raisers.
By not joining the European FTT, the UK will forego £8.5billion in tax according to respected City figure Avinash Persaud. Can we really afford to turn down such revenue? In just one day it could pay the salaries of 1,600 nurses. In a week it could help fund 13,000 new affordable homes. In a year it could make redundant the majority of Osborne’s £11.5billion further cuts announced during the recent Comprehensive Spending Review.
Boris is touchy about taxing the banks, explaining that “banks are the lifeblood of the economy.”
Yet the complete opposite is nearer to the truth. Banks’ sucked the lifeblood from our economy when they required an unprecedented trillion pound bailout to stay alive. Five years on and the economy has still failed to recover – growth was flat in 2012. Yet strip out the fines Britain’s five top banks received for ripping off the public during the same period and their underlying profits rose 45%.
True to the popular caricature of Goldman Sachs as a vampire squid, Britain’s banks continue to suck up public money – £375billion of quantitative easing since 2009. And they’ve drawn £16.5billion from the Governments’ Funding for Lending Scheme. Yet since the scheme started, lending to businesses is down. They are not the beating heart of growth and entrepreneurial zeal Boris would like to portray them as, rather, they’re a gaping wound draining resources needed for wider economic recovery.
The sad truth is that Britain has become a welfare state for bankers. An FTT would help to reverse this and ensure banks give something back to society. As the European Commission tax chief, Algirdas Semeta, put it recently: “Taxing the financial sector is a question of fairness. Banks and financial institutions received – and continue to receive – massive support from the public sector to overcome the crisis.”
The British Banker’s Association regularly gets its knickers in a twist over the FTT, quite right since its members are going to have to pay it. Indeed, we take this as an encouraging sign the tax is broadly of the right design. But as someone with ambitions to be Prime Minister, Boris should assess the FTT not on the effect it will have on his “old friends”, but on how it could benefit Britain. At the very least he should get his facts right.