Caning the banks By Philip Booth
Under the cloak of charging banks for the costs they have imposed on the Treasury, the new coalition government has made a levy on banks one of its centrepieces. They echo the International Monetary Fund’s recent proposals for a levy on all financial institutions. Unfortunately, such a tax will simply give the government a licence to extract more money from citizens’ pockets.
Further bank taxes will not serve their ostensible purpose. Instead, they provide an escape route for governments—including our own—whose structural borrowing levels are perhaps the major cause of global financial stability.
The IMF proposes a flat-rate levy on all financial institutions. At the time of writing, we have no details of the coalition’s plans but both the Conservatives and Liberal Democrats welcomed the IMF proposals. This tax, the IMF argues, may become risk-based over time—but don’t hold your breath. Everything about the plan smacks of a revenue-raising ruse. The IMF recognises efforts that have been made to reduce the cost of bank failure—such as providing for an orderly wind-up of a bust bank—but takes no proper account of those measures in recommending the size of the levy. Because the IMF believes that restricting the tax to banks would be difficult to manage, it suggests extending it to every financial institution: life insurance companies with their huge assets and safe business models would bear the cost of this levy too, as would hedge funds that are not implicated in the recent crash. The whole approach is reminiscent of teachers who used to cane a whole class because they could not work out who had been talking.
It does seem clear that the British government will not set up a fund for the proceeds of the levy to meet future costs of crisis resolution. But, if the levy were to go ahead, earmarking is vital. The rapacious appetite that governments have for taxpayers’ money knows no bounds. Indeed, the Conservative Party promised in its manifesto to use the proceeds for unrelated purposes. We seem to be in danger of treating banks as pariahs while assuming that governments are run by omniscient angels who will use this levy—and its proceeds—for purely beneficial or benign purposes.
The proposed levy on banks will, of course, be a levy on the public—that is on banks’ customers. A great success story of the 1980s and 1990s was the lowering of borrowing costs: spreads for secured borrowing, such as mortgages, declined markedly to the significant benefit of the majority of households. An important reason for this was the deregulation of banking, something that is now in danger.
Dr Richard Taylor: As an independent, he wouldn’t have been elected under proportional representation
Politicians should ensure that the legal framework for banks is such that bailouts do not happen and the sector does not impose costs on taxpayers. I do not support the particular Lib Dem proposals for trying to ensure this but they did, at least, argue in their manifesto that the levy would cease when banking reform had taken place. The Conservatives made no such promise and, ominously, there is no reference to a temporary levy in the coalition document.
Instead of extracting money from banks’ customers we need governments—especially the US government— to stop encouraging irresponsibility by underwriting mortgages, encouraging securitisations, through weak personal bankruptcy laws, through tax systems that encourage gearing and by repeatedly bailing out failed financial institutions for political reasons. That requires real political courage to take on the vested interests: far more courage than levying another tax on the popular whipping boy of the day.
Out of proportion By William Norton
The fashionable view is: the British political system is broken/corrupt/out-of-touch (delete according to taste); we are now in an era of threeparty politics; first past the post is outmoded; it is “unfair”; and some form of proportional representation is needed.
To say that first past the post is “unfair”, because Party A, receiving x per cent of the national vote, does not receive x per cent of MPs already presupposes that “fairness” is the same as PR. It begs the question.
Rival electoral systems represent rival and alternative definitions of fairness. That is why there are so many permutations of PR and every country that follows it has a slightly different version. First-past-thepost defines an MP as the representative in parliament of a specific community. What is the fairest selection method? The person with the most votes wins because he/she is the most representative (or if you prefer, the least unrepresentative) of the views of the people in the constituency he is being elected to represent. It is irrelevant how people voted in the neighbouring constituency or at the other end of the country: the MP isn’t being elected to represent people who live there.
In 2001 and 2005, Dr Richard Taylor was elected as the MP for Wyre Forest on a platform of “Save Kidderminster Hospital”. The proportion of the UK population who wanted to save Kidderminster Hospital would have been so small as to render Dr Taylor unelectable under PR—which, if you think about it, would have been savagely unfair to the people of Wyre Forest.
PR would drive out independents forever and confine politics even more to parties who can afford to run national election campaigns. That’s an odd way to become more in touch with the voters. Under first past the post, parliament represents constituencies. PR on the other hand represents parties. Which do you think is more important?
It also raises the question of what we mean by “nation”. Do we need separate ways of counting the Scots, Welsh and Northern Irish? What about the Cornish? You can quibble about the current rules, but at least we can more or less agree who lives in Wyre Forest.
First past the post is not an outmoded system: it is used in more than 60 countries, containing over half of the world’s democratic electorate.
The British political system is not broken or corrupt
Standpoint Women with a Dove, 1955, is one of Picasso’s works displayed until August 30 in Tate Liverpool’s “Picasso: Peace and Freedom” exhibition, which presents the artist’s role as a far-Left political activist in a favourable light. Meanwhile, his 1932 painting “Nude, Green Leaves and Bust” sold at Christie’s in New York for a record £70 million on May 4.