All three major parties, Conservative, (New) Labour and Liberal-Democrats, talk the same about the impact of the financial crisis. "We are all in it together" say their leaders. The discussion is on the issues how we are made to pay for that: a combination of public expenditure cuts and raise in taxes. In the last few days, the media brought a story of Goldman Sachs facing fraud charges in the US and the Financial Services Authority investigating the same in the UK. This accompanies the stories of banks' (again) bumper profits and huge bonuses paid to individual bankers.
In contrast, yesterday during the three parties leaders debate an elderly lady, who worked hard all her life, asked a question whether it was fair for her, at the age of 84 years, to live on £59 a week pension.
"We are all in it together.": retired folk on £59 a week pensions and individuals from financial institutions that, allegedly, committed serious fraud and who are responsible for the current crisis and, thanks to the mechanism that caused the current crisis, collect hundreds of thousands or even millions of pounds in bonuses. And if it were not enough, in her article in yesterday's FT, Gillian Tett clearly suggested that individuals in these institutions, or at least in one of them, operate like mafia under a code of silence.
"Irrespective of what Goldman’s clients and service providers have really thought about the bank, most have been reluctant to antagonise the bank, since they feared that Goldman was so powerful that any critic would face some backlash. Hence the fact that so few law firms, consultants – or even bankers – have ever testified in public against the firm, on CDOs or anything else."
Thus far the only action that politicians proposed to curb excessive, if not dishonest, bonuses was to tax banks and bankers on their future income, forcing banks to pay more in shares than in cash. Any effective action was frustrated by those who argued, rather irrationally, that such actions would lead to bankers leave the country. Hence not only would very little be collected but the industry would be damaged as it would relocate abroad, away from the City. This is not only nonsensical. This is also looking through the wrong end of the telescope.
In 1997 when New Labour came to power they imposed a retrospective "windfall tax" on "the excess profits of the privatised utilities".
Leaving aside arguments about legality of the bankers profits, there is a uniform agreement amongst three parties, Conservative, (New) Labour and Liberal-Democrats, that bankers pay has been excessive for some years. Therefore all three parties should have proposed a similar windfall, retrospective tax on the individuals working in the City (including any source of future income like pension pots). The tax should go at least as far back as 1997, when the change to financial regulations was introduced and, to avoid any accusation of unfairness, it should tax net income above a reasonable threshold.
For example, as a reasonable guide (i.e. a template for the politicians), for any tax year since 1997/1998, an individual must pay a 90% tax on any net income received above £200,000. Not only would this recoup billions of pounds for the Exchequer, but it would also go some way in resolving such disgraceful cases like Sir Fred Goodwin's pension as his pot would have been reduced accordingly.
No one can question that £200,000 a year net income is generous especially if it comes from the industry that has been proved to be such a financial disaster and massive liability to the taxpayers. If the politicians are really concerned about the bankers leaving the UK as a result of such measure, they can give an incentive for the bankers to stay. For example, they can allow a 1% tax refund for every year that an individual stays in UK and pays taxes up to maximum 10%. I.e. if an individual stayed and paid taxes for the next 10 years he would have paid 80% tax on all his net income above £200,000 for every year between tax year 1997/1998 and 2009/2010.
As this would be basic tax legislation, like windfall tax in 1997 on "the excess profits of the privatised utilities", all other options against the financial institutions and individuals working for them would still remain open. In 1997 some opponents of the windfall tax argued then that it would damage utilities industry. It did not. By the same token, such tax will not damage banking. This would not be a tax on banks, that might be struggling now as institutions. This would be a tax on individual bankers who collected massive payments whilst they were driving the industry into a disaster. This measure would not be about justice but recouping billions of pounds that the Exchequer needs so badly.
So are our leaders short of ideas or they do not have guts?