David Prosser: It's time for a 'Robin Hood tax', Mr Darling

Friday 26 February 2010 01:00 GMT
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Outlook Having made the decision that he would personally approve or veto bonus payments at Royal Bank of Scotland, Alistair Darling cannot have been surprised yesterday when his political opponents sought to make capital from the £1.3bn the state-controlled bank is paying its star performers.

Still, the Conservatives' attack is straightforward opportunism. In talking about reducing the "ridiculous levels" of pay in banking, is George Osborne really suggesting that a Tory government would move against the City? Assuming he is in the hot seat this time next year, will Mr Osborne promise to veto all bonuses at RBS if it is still loss-making? Or will he go further, by legislating for pay caps, say, or by taxing the bankers into moderating their behaviour? It is scarcely imaginable.

As for the Liberal Democrats, who seem more disappointed about RBS's failure to hit lending targets than its losses, how do they suggest we force these banks to loan more? The targets have been missed because customers, both corporate and individual, are desperate to deleverage. Very sensibly, inconvenient though it may be for our chances of escaping recession, Britons are paying back debt faster than they are taking on new borrowing. Do the Lib Dems really want our banks to lend so aggressively and irresponsibly that the private sector's stock of debt rises to even more unsustainable levels?

None of this should be taken as accepting the behaviour of RBS. Whatever the level-headed arguments of its chief executive Stephen Hester about his need to retain the best staff, a country in the throes of the worst recession in living memory – and anticipating more pain to come from tax rises and spending cuts – should not be expected to stomach these payments. Especially from an institution saved and now predominantly owned by taxpayers.

Mr Hester knows this. It is why he has waived his own bonus this year. And if he can see the moral imperative in not claiming his own contractual entitlement, how does he defend the payment of £1.3bn worth of discretionary bonuses to his staff?

There will be those who believe that Mr Darling should simply have vetoed any bonuses at RBS. Doing so might even have been a vote-winner. It would also have torpedoed the bank's future. Not because star performers would jump ship, but because RBS must be managed as a commercial concern, free, as much as possible, from political interference. If we really want ministers to run this bank, let us nationalise it completely and see how it fares with the Chancellor and his colleagues saying yes or no to our mortgage or small business loan applications. It is not a happy thought.

If the Chancellor is not to become the next chief executive of RBS, how should he have responded to the furore over bonuses? He must make the best of a bad situation. And what better way to do that than at a time of fiscal crisis than to make hundreds of millions of pounds worth of tax from the banking sector?

We often forget what a crucial source of tax revenue the financial services industry has become. Much of that revenue has gone missing since the credit crunch. RBS, for one, isn't going to be paying much corporation tax this year. The one-off super-tax on bankers' bonuses will help.

In its original objective, to deter the payment of large bonuses, the charge looks to have largely failed, though it has had an effect at the margins. Goldman Sachs scaled down bonuses to London staff, for example, while RBS originally wanted to hand over more than £2bn. The compensation is what is likely to add up to more than £3bn of extra tax revenue. RBS alone will pay the Treasury £208m.

Having scored this one-off hit, the Chancellor needs to go further. Gordon Brown is right to support the international tax on banking transactions and he should be working harder to overcome US resistance to the idea, rather than going quiet in the face of such opposition. The campaign of the TUC and others for this charge – they describe it as a "Robin Hood tax" – is popular. More importantly, this is a realistic way to ensure that the international banking sector continues to show gratitude for the support it has had.

Mr Darling has mostly made the right calls on bonuses, balancing public anger with practical considerations. The next right call is the Robin Hood tax. Let's hear what Messrs Osborne and Cable think, too.

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