Margareta Pagano: Politicians need to grow a spine and sort out the banks
Sunday 25 April 2010
Banker-bashing has worked and the exodus has begun. I've now received three invitations to attend leaving parties from friends and contacts who are traders and who are quitting the UK to head for the low-tax avenues of Geneva.
All three are exceptionally clever French mathematicians – one with a PhD in the mechanics of the Sun – who came to London to work for hedge funds or banks in the 1990s, to escape socialist France and its punitive tax system. They all love London and they are going reluctantly, taking children out of schools and selling their homes. But, they say, Labour's new 50 per cent tax for those earning more than £150,000 a year is the final straw. Threats of more taxes to come from whoever wins the election – as well as from the IMF on the banks they work for – make the outlook even bleaker.
Now, many of you might say good riddance; that we've had enough of the loafer-wearing quants, and their swanky wives, pushing up property prices. But that would be short-sighted. Figures from the Institute for Fiscal Studies show the UK will lose more in tax revenue when these people move than the tax revenue earned from taxing them at the 50 per cent rate. I know many others, too, part of the same cosmopolitan tribe who have made London their home for the past two decades, who are also considering leaving.
Some of them would move on anyway, because they are born nomads, so we shouldn't be too worried by this latest flight; it's natural attrition. No, the much bigger issue is whether the latest tax increases and populist regulation launched by the Labour Government – and parroted by the other parties – since the financial crisis will have a lasting and damaging effect on whether new workers and new foreign investors will want to come to the UK in the future. As Richard Lambert, the head of the CBI, said recently – when foreign firms ask him why they should come to Britain, he can't think of a single reason, not even the weather.
All the parties have been as bad as each other in chasing votes by attacking the bankers, offering new regulations and higher taxes as a sop to the baying public. But they have all missed the point. None of their proposals will improve the governance of the financial industry or restructure it so that such crises do not recur. By attacking bonuses they have gone for the symptoms and ignored the reason why the banks make so much money.
Surprisingly, the Tories are the most radical, as they want a full competition review. They support splitting up the banks – only if it's part of a global agreement – but they are also pushing more foolishly for a unilateral tax. The LibDems are also for splitting up the banks, but want bonuses above £2,500 paid all in shares, while Labour backs IMF plans for two new global taxes on banks and hedge funds which could, if implemented, have a worse impact on financial institutions by forcing them to take on even greater risk to make up for the money lost in tax. The taxes also start from the wrong premise; they are being raised to compensate taxpayers in case of future collapses, and allow the system of too-big-to-fail to continue. That is the wrong way round – we need to find a simpler and safer banking system, and that can only be achieved by breaking up the banks, making them more competitive and less dependent on each other.
But that would require our politicians to be brave, and, on the evidence, none of them seem up to it.
Barclays bound: Anti-aid economist takes on new role
Zambian economist Dambisa Moyo is to aid what Ayaan Hirsi Ali is to Islam. So says Paul Collier, the noted development economist in his review of her book, Dead Aid. He should know, he taught Moyo at both Oxford and Harvard. Moyo caused a storm with her view that aid to Africa should be cut because, while it might make us feel better, it's dead and lazy money which aggravates the continent's problems.
A former Goldman Sachs debt capital markets expert, Moyo is joining Barclays as a non-executive director. It's a fascinating appointment, not just because of Barclays legacy with apartheid South Africa, but because she can help shape the bank's strategy in the developing world. She's keen on micro-finance, but her real hope is that when African countries clean up their act, they can use the capital markets to build their own investment capacity. First aid, if you will, not Live Aid. Good luck to her.
The Germans are coming – and nobody seems to mind, let alone Arriva
Isn't it funny how everybody was so soft-centred about losing Cadbury to the Americans but appears hard-nosed about Arriva's trains and buses being driven off by the German state railways? So far it's only the giant Rail, Maritime and Transport union which is objecting to Deutsche Bahn's £1.6bn bid for one of Britain's biggest train companies. There hasn't been a tweet from the politicians, even though the uproar over Kraft's bid for Cadbury prompted the Government to propose much tougher scrutiny of takeovers to stop our best firms going overseas. Lord Mandelson even wants a new "Cadbury law", demanding, inter alia, that two thirds of investors agree to a bid.
That's why it's so intriguing that the usual suspects have stayed shtum about DB's latest raid. It already owns big chunks of UK rail – Chiltern Railways, and the Royal train, and recently won the contract to operate the Tyneside Metro in Newcastle and Gateshead. Adding Arriva will bring it the CrossCountry franchise from Aberdeen to Penzance as well as Arriva Trains Wales and about 20 per cent of London's buses. Arriva got a top price of 775p cash a share and is recommending the takeover to shareholders, who seem almost certain to accept without a murmur.
I reckon so little has been said because we secretly think having the Germans run our trains is rather a good thing. It may be a state-run company but it is run for profit and with the sort of Teutonic precision we have come to enjoy. There's another factor which makes it embarrassing to make a fuss – nearly half of Arriva's profits and revenues come from Europe, where it owns many businesses.
You can't have your cake and eat it. But you can make sure that Europe's competition rules are open to everyone – that's what politicians should be looking at rather than worrying about new Cadbury rules.
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