Britannia Radio

It’s time this was said - long overdue.

The country has complacently never had it so good for a quarter of a century on the backs of the genius of the City of London. The crash came about because the government failed in its duty to regulate and control the economy.

If we go on destroying it like this we will be left with a gaping hole in our economy and in our tax revenues from which there would appear to be no way out - no substitute

Christina

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TELEGRAPH 12.12.09

You'd think we want to drive bankers away

The tax on City bonuses is a bad idea and risks alienating an industry we need, says Jeremy Warner.

Not since the famous window tax, which caused our 18th-century ancestors to block out the daylight rather than pay the levy, has there been such a perversely arbitrary and self-defeating form of taxation as the proposed surcharge on bankers' bonuses.

The absence of self-restraint among bankers in paying near-record bonuses so soon after a financial calamity that came near to causing economic oblivion is breathtaking in its arrogant disregard for public opinion.

But this is not the appropriate response, and for Britain to go it alone in taking action against its most successful industry, rather than seeking the international consensus and implementation so important to London's status as a trading entrepôt, is tantamount to the self-harming antics of the mentally disturbed.

Even by the Government's own admission, the supertax is unlikely to raise more than £500 million – a mere drop in the ocean of the massive deficits now being clocked up – yet the damage to the City's long-term competitiveness and contribution to the tax base will be much greater.

Nor is this rush to populism confined to the Government. As if competing for the position of bank basher in chief, all the main political parties play to the gallery in their determination to visit retribution on the wicked bankers.

For the Government, the purpose is not in truth that of raising revenue, still less of bringing about desirable structural reform, but rather that of pushing the Tories into the corner of open support for the City, so that they can be branded as lackeys to the rich.

But the Tories aren't playing. Instead, they seek to match the Prime Minister every step of the way in anti-banker zeal. Had Brown decided to execute the bankers en masse and impale their heads on London Bridge as an example to all, the Tories would have gone along with it as a perfectly reasonable approach to the problem.

For more than a decade, Brown sought to foster the City with favourable tax and regulatory arrangements. But now boom has turned to bust, he seeks to make political capital out of the mess he helped to create. The interests of economic recovery and advancement are being subjugated to those of the ballot box.

The financial services industry is Britain's biggest source of tax revenue, contributing around a quarter of corporation tax receipts. On top of that, the sector pays a disproportionately high share of income tax and National Insurance contributions.

Tax receipts from the financial and housing sectors amounted to around 4.5 per cent of the nation's entire economic output at their peak, or getting on for 15 per cent of the UK tax base. Yet even these numbers understate the full importance of the City to the UK economy. Taking into account business support services, from legal work to accountancy and IT, and the huge array of jobs that piggyback off the City's wealth – restaurants, retailers, airlines, taxis, bars, gardeners, nannies, personal trainers, dog walkers and so on – the numbers are much larger still.

Governments play with this rich source of employment and tax at their peril. It's not obvious what's going to replace it if it goes, yet the political rhetoric seeks to expel the financiers from our midst.

On almost every level, this is a bad tax. It is arbitrary and unfair in the way it applies, hitting some financiers but not others and penalising those who haven't received a penny in UK government aid alongside those who have. It is also likely to make banks less safe, rather than more so.

London's advantages of time zone, language, culture and infrastructure mean its trading floors and banking parlours are not easily shifted, even when under such assault. Not everyone can move to Zug, the low-tax Swiss canton favoured by hedge funds. Still less would anyone willingly want to swap London for the sun-baked and now vacant skyscrapers of Dubai.

Yet once politics gets in the way of economics, it's the start of a slippery slope. Rather than providing the certainty finance needs to thrive, Brown has capriciously shifted the goalposts for political gain.

The approach to bonuses agreed by the G20 little more than six months ago has been torn up in favour of a go-it-alone strategy that is deeply damaging to an economy as dependent as Britain on global rules and consensus.

By doing so, the Government has encouraged others to do the same, to the detriment of Britain's long-term interests. To see the future, take the example of Goldman Sachs, a New York-based investment bank that is as rounded a representative of global finance as any.

As things stand, some 35 per cent of its global revenues are generated and taxed in London, even though Britain accounts for only 7 per cent of this income. The rest is international. Others would roll out the red carpet to get their hands on such a dynamo of tax and wealth.

Maybe it is inevitable that, in the years ahead, these revenues will drift away to the centres of population in emerging markets – but Britain seems to be doing its utmost to accelerate the switch.