On the cost of that financial system bailout

Just a thought:

The taxpayer is sitting on a profit of close to £10bn on its stakes in Royal Bank of Scotland and Lloyds Banking Group after a surprise surge in their share prices.

You know, all these people who have been saying that banks must be taxed more to pay back what they\’ve cost the Treasury.

Now that the Treasury\’s in profit, so, err, do taxes on banks get cut then? To account for the negative cost to the Treasury of the bailout?

Or is there some reason that it doesn\’t work like that?

12 comments on “On the cost of that financial system bailout

  1. I’ve watched with wonder as our politicians, having injected billions of pounds of taxpayers’ money, struggle to find new ways to tax the banks into oblivion.

    Simple soul that I am, it’s always seemed bloody obvious that, as us/HMG owns 83% of RBS and 41% of Lloyds, the most sensible thing to do would be to leave them alone, allow them to become profitable once more (Lloyds are as of this morning’s announcement), explain to the boards that it might just be a good idea to pay less in bonuses and more in dividends on pain of ejection at an EGM, then sit back and collect the dosh. Then, eventually, trickle the, much more valuable, stock back into the open market and recoup a bloody huge profit for the taxpayer.

    But… I did say “sensible thing to do”. What’s the odds on a “Brown Bottom” on RBS and LLoyds?

  2. the disgraceful fashion in which the media has portrayed the cost of the bailouts (we’re giving the banks billions of taxpayer’s money!) has long given me ulcers.

    Tim, that’s a v good point you make concerning the argument that banks need taxing to pay for the bailout.

    I prefer the argument that banks need taxing to raise the cost of activities that imperil the financial sector, and that if we need to raise tax revenues from the banks to pay for anything, it’s not to pay for the bailouts but to tide us over the recession and collapse in tax revenues + rise in expenditures that financial crisis create.

    Although it should be born in mind that although these bailouts might have ended up making us money, they needn’t have. Properly speaking the “tax banks to pay for bailouts” should be seen in terms of the expected cost, and you could still argue that merely the risk of massively loss making bailouts requires insuring against via taxation.

  3. Populism, and Blame Dodging

    Brown’s profligacy and artificially reduced interest rates were an important factor in the crisis. So bank blaming is essential for his personal survival. The tax issue is just the next logical step.

  4. Mr Enrique, I am not sure I agree with this:

    “I prefer the argument that banks need taxing to raise the cost of activities that imperil the financial sector, and that if we need to raise tax revenues from the banks to pay for anything, it’s not to pay for the bailouts but to tide us over the recession and collapse in tax revenues + rise in expenditures that financial crisis create.”

    Depends on what you mean by “activities that imperil the financial system”. If taxing banks is done, it will, as Tim has pointed out before, mean the banks pass on the cost to consumers in the form of lower savings rates, higher borrowing costs, crappier service, or all three at the same time.

    A far more radical approach to the banks is to make it clear that after a certain point, bailouts will not be contemplated, and that if banks fail, then depositors will have to face a haircut.

  5. JP

    yes you are right, taxes will be passed onto consumers in the form of higher charges, lower rates etc. but remember that financial crisis “pass on” recessions to consumers too, so the net effect should be moderated.

    The trick is to identify what those “activities that imperil the financial system” are, so that the price of these activities can be raised, via taxation. But I think we have a pretty good idea of what those activities are.

    I’m afraid your more radical approach simply isn’t credible. No government will let a major bank go to the wall if they think it’ll set off a domino effect.

  6. Of course, depositors have already taken a haircut – savings accounts which pay paltry rates of interest that are significantly below inflation and which are denominated in a currency that has slipped substantially compared to our major trading partners’ currencies.

    Barber Brown just hasn’t shown us the mirror yet.

  7. Perhaps that all shares are doing well (or at least better than expected) because wiyh interest rates of 0.5% where else will people put their money.

  8. Luis,

    Not sure why the way the papers have portrayed the cost of the bailout has given you ulcers. That seems rather perverse given 1, their anaemic and deferential coverage of finance, and 2, the high cost of the bailout to the public sector.

    I know, I know–stupid morlocks don’t understand high finance, so a position of obsequiousness is appropriate; and the government received paper assets in exchange for the money it gave to the financial sector, paper assets that may, given the government’s total commitment to preventing the financial sector from suffering from any of the consequences of its bad judgement, be turn out to be worth something. What astonishing business acumen—we should do this every year!

  9. I’ve watched with wonder as our politicians, having injected billions of pounds of taxpayers’ money, struggle to find new ways to tax the banks into oblivion.

    Simple soul that I am, it’s always seemed bloody obvious that, as us/HMG owns 83% of RBS and 41% of Lloyds, the most sensible thing to do would be to leave them alone, allow them to become profitable once more (Lloyds are as of this morning’s announcement), explain to the boards that it might just be a good idea to pay less in bonuses and more in dividends on pain of ejection at an EGM, then sit back and collect the dosh. Then, eventually, trickle the, much more valuable, stock back into the open market and recoup a bloody huge profit for the taxpayer.

    But… I did say “sensible thing to do”. What’s the odds on a “Brown Bottom” on RBS and LLoyds?

  10. Of course, depositors have already taken a haircut – savings accounts which pay paltry rates of interest that are significantly below inflation and which are denominated in a currency that has slipped substantially compared to our major trading partners’ currencies.

    Barber Brown just hasn’t shown us the mirror yet.

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