Comment: Merlin’s tricks failed to impress
Merlin: a legendary wizard famed for his sorcery and tricks. Also the name of the deal just struck between the banks and the government. Designed to restore the images of both, it would show the UK public that banks had finally come to heel. The fact that it shares its name with a master of illusions may not fill you with confidence, but it was the substance of George Osborne’s statement last week that’s the real cause for concern.
By Simon Chouffot
The key announcement was that banks agreed to lend more to businesses. Bank lending is incredibly important for economic recovery, but we should remember why that recovery is needed in the first place. According to the International Monetary Fund (IMF), the “systemic crisis” triggered by banking failure caused UK economic output to fall by 27% or £497 billion. Directly, the bank bailout cost the UK over £1 trillion, money that underpinned an industry that is again reporting eye-popping bonuses. It’s difficult to raise a cheer that banks have agreed to lend back a fraction of this money back, on commercial terms that many businesses will struggle to meet.
Banks should be lending to businesses, it is an essential and profitable part of their operations. But having precipitated the largest financial crisis of a generation that affected millions both here in the UK and around the world, they also have a wider responsibility to society as a whole. As a result of their reckless behaviour 56 of the poorest developing countries have a $65 billion dollar hole in their budgets. In the UK 3.9 million children continue to live in poverty and deep public sector cuts will affect us all for years to come.
Since launching a year ago, the Robin Hood Tax campaign has been calling for the banks to pay their fair share back to society. As institutions such as the IMF and European Commission have pointed out, the financial sector is over-sized and under-taxed: they can clearly afford to pay more, and it’s time they contributed to clearing up the mess.
By introducing the bank levy, the government has acknowledged there is a case to answer. A little more than 24 hours before ‘Project Merlin’ was unveiled, Osborne announced an addendum to this legislation – described as a ‘fair contribution’, it will this year raise an additional £800 million, bringing the total to £2.5 billion.
Banks were reportedly ‘livid’ at this last minute addition, though the true impact was revealed by their share prices which didn’t so much as flinch. £2.5 billion is spare change for a sector, which according to research by the Institute for Public Policy Research, can afford to pay £20 billion more a year. More worrying still, a sleight of hand means the levy will be offset by lowering corporation tax from 28% to 24%, further reducing banks’ contribution.
But perhaps the financial sector’s greatest trick of all is to have us believe its astronomical wealth is down to pure performance-related brilliance. Believe what you see! A feat of extraordinary human endeavour! If eyebrows were raised before the financial crisis, then having driven our economy and much of their own sector into a brick wall, this clearly cannot be taken at face value.
The truth is UK banks owe much to the public. Credit rating agencies know the government (read: taxpayer) will not let banks fail. This has a positive effect on banks’ credit ratings, which in turn allows them to borrow money more cheaply. And the leveraging begins.
Sound trivial? Andrew Haldane, executive director of financial stability at the Bank of England, revealed the truth last year when he said: “The average annual subsidy for the top five banks over these years [2007-2009] was over £50 billion – roughly equal to UK banks’ annual profits prior to the crisis.”
That amounts to one enormous IOU from the financial sector to society. Or in the words of another Bank of England grandee, the governor Mervyn King: “Never in the field of financial endeavour has so much money been owed by so few to so many.”
Increasingly, the public are unwilling to put up with this state of affairs. A recent ComRes poll said 80% of the public think Cameron could do more to tax banks. In spite of its best efforts, the smoke and mirrors of ‘Project Merlin’ has done little to appease public anger.
Later this week supporters of the Robin Hood Tax campaign in over 20 countries will be taking their message to the streets that it’s time for banks to pay their fair share. Up and down the UK, campaign supporters – including public sector workers, pensioners, students, unemployed people and other individuals affected by the cuts – will be paying a special visit to bank branches. This weekend UK Uncut demonstrations will turn their attention to the banks.
If Merlin’s tricks have failed to impress the audience, some of those in government who booked the act are not convinced either. Lord Oakeshott recently stood down as a result of the deal and Vince Cable yesterday said: “There needs to be fundamental reform. There will have to be change and it will have to be radical.” Let’s hope that Merlin was just the warm-up act.
Simon Chouffot is spokesperson for the Robin Hood Tax campaign.
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