Leading article: A levy that looks like a white flag of surrender

Questions need to be asked about exactly how hard this Government has pushed for banking reform

Share
Related Topics

It is unusual for a Chancellor to announce a tax rise outside of a Budget. So what can explain George Osborne's surprise decision yesterday to increase the banking levy he announced last June? The Chancellor says he made the move because he noticed that the large banks were in a better financial condition than expected last year.

That is an insult to the public's intelligence. Nothing about the banks' financial situation has changed in recent weeks. The only new development with regard to the banks is the fact that the Government's behind-the-scenes attempts to reach a deal with the sector over bonuses (known as Project Merlin) have, according to reports, run into trouble.

This move has all the signs of being born of political, not economic, calculation. Mr Osborne knows that an eruption of public outrage is coming in the weeks ahead when the large banks outline the vast bonuses they will pay to their staff for 2010. With this pretty negligible £800m tax rise the Chancellor hopes to deflect some of the anger that will soon be directed towards the Government for its failure to be sufficiently robust with the banks.

It is possible to have a smidgen of sympathy for Mr Osborne. The Coalition inherited the nightmare of bankers' bonuses from Labour. The previous government should have made clear that bonuses were unacceptable when it stepped in to rescue the entire sector in autumn 2008. Yet Labour's missed opportunity does not absolve Mr Osborne and the present Government of its failure to bring the banking sector to heel. The Conservatives took an admirably tough line over bonuses in opposition, demanding that no individual banker should be awarded a cash bonus of more than £2,000. They have had ample time to work out how to implement that policy.

And questions need to be asked about exactly how hard this Government has pushed for reform of banking practices. New research from The Bureau of Investigative Journalism shows that the Conservative Party gets more than half of its funding from employees and firms in the financial services sector. The research also shows that the party's financial reliance on the City has doubled under David Cameron's leadership. How prepared is Mr Cameron to bite the hand that feeds his party? At the weekend, the Prime Minister said he was more interested in maximising tax revenues from the sector than giving the banks a "kick in the pants". Messages are mixed.

The reform agenda for the banks is plain enough. There needs to be an overhaul of remuneration practices at British banks where a small number of traders pocket up to half of the firm's revenues in bonuses, even in the years when the bank itself registers enormous losses. Such a remuneration system means that bankers get a huge share of the financial upside during booms, but none of the downside in busts. It thus incentivises irresponsible risk-taking and a short-term outlook. If other nations are content for their banks' employees to be rewarded in this dangerous manner, that is their lookout. Britain needs to do what is necessary to protect British taxpayers.

There also needs to be a requirement for the banks to lend to small and medium-sized businesses that are presently being starved of working capital. A lack of such lending is undermining economic recovery, according to the Bank of England. Finally, there needs to be a forced break-up of a too-big-to-fail oligopoly that has no incentive to improve the service that ordinary high-street customers receive.

The Government appears to have surrendered on 2010 bonuses. The increase in the banking levy looks depressingly like a white flag. But the most important battle lies ahead. If ministers signal a pre-emptive surrender on breaking up the banks, we will be in no doubt who their real masters are.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Vehicle Purchaser

£12000 - £30000 per annum: Recruitment Genius: his is a unique opportunity to ...

Recruitment Genius: Accountant

£30000 - £35000 per annum: Recruitment Genius: Summarises financial status by ...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Recruitment Genius: Salesforce Developer

£50000 - £65000 per annum: Recruitment Genius: Due to continued business growt...

Day In a Page

Read Next
Rachel Hollis posted a photo of herself in a bikini on holiday online with the caption 'I'm proud of this body and every mark on it'  

At last there’s a new ‘bikini body’ ideal – and it’s one with stretch marks

Victoria Richards
Ed Miliband contends with difficult questions from Jeremy Paxman  

Battle for Number 10: Miliband survives a rough ride but Cameron takes the edge in first TV battle

John Curtice
The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss