Let the banks fail

I’ve just been on Storm Huntley’s show on Channel 5 discussing recent massive bank profits and whether the government should improve ‘windfall taxes; on them.

I have to admit that when I saw the profits posted for HSBC, Citibank, Lloyds et al I was pretty irritate!

Given that most of us – even those on a comfortable income – are finding it much harder to pay our way than we used to, it is like rubbing salt in the wound to see the banks effectively profiting from our misery. Much of the reason why they have raked in the cash in the last year is because of the higher cost of borrowing which has been good news for them, while creating yet more financial burden for customers. However, we have to remember that banks are businesses and they need to make a profit like any other business. Placing a tax on high profits on any business is like punishing them for doing well. That is not a good precedent to set.

Windfall taxes are supposed to be levied on companies that have benefited from something they were not responsible for in conditions they did not create. But you could argue that many businesses get lucky here and there when conditions are particularly favourable to what they do. At other times those conditions might be the complete opposite.

Personally I’m not in favour of windfall taxes on companies or ‘super taxes’ on individuals who make a lot of money as it disincentivises people and businesses to make money. That doesn’t help anyone.

Currently the UK imposes a bank levy which it introduced in 2011 in response to the 2008 financial crisis. This applies to the balance sheet assets of UK banks as well as assets belonging to the British operations of foreign banks. It’s a kind of constant tax and, the better they do, the more they pay anyway.

Windfall taxes on bank profits are not generally done across Europe. Italy imposed some last year and Spain are threatening to do so, but France, Germany and Sweden don’t (although Sweden has a ‘risk tax’ based on banks’ liabilities).

It’s possible that if Labour becomes the ruling party in the UK that they will impose windfall taxes on banks – they have certainly threatened it with the utilities companies that also did very well out of our misery in the last few years – but that is by no means certain.

No bail-outs

Ultimately, let’s be honest, banks are businesses. Even though for years we saw our high street banks as something akin to the NHS – semi-governmental and certainly part of the establishment that is there to support and protect us – the financial crash of 2008 showed us in living colour just how very much they are businesses that are there to make a profit first, pay its shareholders second and serve us the customers third.

So, as banks are businesses they need to take the rough with the smooth. We the taxpayers bailed them out back in 2008 when they played fast and loose with our money. At the time I thought that was essential as we would have lost our money if they had been allowed to go under.

But that should never happen again.

Individual bank customers’ money is now covered by the Financial Services Compensation Scheme (FSCS) up to £85,000 per person. That is enough. So if a bank looks like it’s teetering on the edge we should let it fall and say good riddance. Don’t over-tax the banks, but never bail them out again.