On a banking levy:
The intellectual case for such a tax is pretty much unarguable, or would be if we could be certain it was going to be paid solely out of excess profits. Unfortunately we cannot. Like most forms of business taxation, the banks will find ways of passing it on in higher charges or wider spreads. Therefore the levy becomes another stealth tax on the general population.
Yes, it might well be passed on, just as with any other form of business taxation always is (even if it were solely to come from excess profits this is passed on to shareholders, is it not?). But we shouldn\’t be ascribing agency to this passing on of the burden of taxation.
It really isn\’t bankers (or anyone else) saying \”who can we stick with this tax\”. It is simply that the tax itself changes behaviour, that change in behaviour shifts the burden.
There are plenty of precedents for ongoing industry levies – petroleum revenue tax being the most obvious example.
Yes, but that particular one is a very bad example. That\’s a land rent more than anything else. A charge upon resources that are within the borders of the Kingdom purely by happenstance. As such, a very good tax, one of the least distorting possible. Banks aren\’t really exploiting such a \”free\” resource so a tax can\’t quite be justified on the same grounds.
Both the main political parties seem to favour an Obama-style levy which seeks to tax bank balance sheets according to the amount of wholesale funding being used, but the detail and implementation is very much a work in progress.
According to the Bank of England\’s last Financial Stability Report, UK lending is funded to the tune of about £800bn by wholesale money. A tax levied at the US rate of 0.125pc could therefore be expected to raise about £1bn. Any such tax would also perform the secondary purpose of incentivising the banks to move to \”stickier\” forms of retail funding.
I have to say that it worries me that I\’m in agreement with the two major political parties. Their agreeing on anything is usually a sign that they are wrong. But I have to say that I still do see this as the best solution.
It\’s hard to see how special taxes contribute to this endeavour. Indeed, to impose such a levy implicitly recognises that banks are special and that every now and again they are going to have to be bailed out.
Well, yes, I think they probably are special and that they probably will require periodic bailing out. Precisely and exactly because banks borrow short and lend long and are thus always subject to the possibility of a liquidity crisis through a run. It\’s inherent in having any institution that occupies the place of a bank.
I\’m sure there are ways of making such less likely, but entirely unconvinced that the liklihood can ever be erased.