On Wednesday morning, whilst listening to the Lib Dem’s Treasury Spokesperson, Daisy Cooper talking to BBC’S Amol Rajan, I cut myself shaving, as a result of her preposterous suggestion that a £30 billion windfall tax spread over six years should be levied on the UK banking sector in the forthcoming Budget on 26th November.
I thought I was about to experience cardiac arrest in response to such a ludicrous and ill-thought suggestion. Whatever possessed her, Sir Ed Davey and the Lib-Dems to come up with such a nonsensical and ill-thought out suggestion that could all but extinguish any kind of smouldering growth.
Our banks would understandably have to consider severely curtail lending and the public could kiss goodbye to any ideas it might have of the government delivering 1.5 million homes in the current Parliament. I think it was very clear that that that goal was never going to be achieved anyway. However, Housing Minister Steve Reed and his team are unlikely to ever make a fist of the task.
In 2008, when the credit and banking crisis started to manifest itself, Ms Cooper was 24 years old. Nonetheless she must have known that it savaged the economy, with about 1 million jobs lost. The net cost of the crisis was £23 billion to the public, according to an Office for Budget Responsibility (OBR) estimate from 2018, which factors in government recoupment of the initial bailouts. The government spent £137 billion in cash injections and loans to stabilize banks, but later reco6vered most of this money.
Though it appears that Ms Cooper has scant respect for shareholders, it will not have escaped her notice that some our leading banks and building societies were trashed out of existence in 2009, with the eventual disappearance of the Bank of Scotland, the Royal Bank of Scotland, the Northern Rock Building Society, Bradford & Bingley Building Society plus the dilution or acquisition of Halifax Building Society, Woolwich Building Society and Cheltenham & Gloucester Building Society. RBS’S shares fell to 11p, Barclays to 88p and Lloyds Banking to 25p by February 2009.
Most of this recovery process has taken place in the last two years. For over a decade UK banks have languished behind US banking achievements. Now, after sixteen years of blood, sweat and tears with the help of government support plus copious rights issues, and in the wake of much tougher capital requirements and regulation, these shares have regained some poise as well as the respect of international investors. In passing a large amount of banking debt has been repaid to the taxpayer.
It may also have escaped the Lib-Dems notice that the City of London has all but returned to the pinnacle of its pomp, as Europe’s leading financial centre, contributing together with the rest of the financial sector just under £100 billion of revenue to HM Treasury’s coffers. To pour scorn on that achievement would be very short-sighted. Even though the Lib-Dems spiteful suggestion would only affect UK banks, it would send out a message to international investors that London may not be a place where capital could be raised and where international foreign exchange, derivative and bond dealing could continue to thrive.
Optics and credibility are key components for the continued success of London as the financial centre alongside New York, where the size of its economy dictates its pre-eminence for fund management and share trading. London has recovered well since BREXIT. It lost Euro denominated fund management to other European centres, but in terms of volumes and activity, it has regained much of its lost ground. Other European centres have been found wanting as competitive financial centres in comparison to London
It could be financial suicide to levy a windfall tax on banks. The damage to the reputation of the City could be irrevocable. Also, a levy of this nature could impede growth and fuel unemployment. Could the Lib-Dems please withdraw its ridiculous proposal? It has zero credibility.
David Buik is a City commentator
