IMF: Banks should pay their own way and no ‘Robin Hood’ tax
Dramatic developments tonight from Washington where the IMF has been distributing a long-awaited report into options to get banks to pay their way.
The IMF is recommending two separate new taxes, which one official told Channel 4 News could raise £5-10bn per year in UK, and help fill a £50bn to £60bn fund for future bank rescues.
The figures are sketchy but give an indication as to the sums that could be available. Globally it will be tens of billions per year and a fund of a few hundred billion.
The two taxes are called the Financial Services Contribution (FSC) and the Financial Activities Tax (FAT — which must be some sort of IMF gag about fat cats).
The FSC is an annual levy on the size of a bank, specifically its balance sheet net of capital and insured deposits. It will be a source of funds and an incentive not to grow too large.
That could make it a little like the Swedish levy on wholesale lending, which has been adopted wholesale by the Conservatives. The IMF recommendation though, is that the money goes into a specific separate Resolution Fund that could be drawn on in the event of a crisis rather than raiding public coffers.
This is not the position outlined by the Chancellor in the budget, who suggested the proceeds go into general taxation so as not to provide a temptation for banks to collapse.
The Conservatives have gone a step further and already spent the estimated £1bn annual proceeds on their initiatives to recognise marriage in the tax system.
The IMF plan is that this pot of money will fund the direct costs of a financial collapse.
The FAT is a separate tax levied on a combination of profits and bank bonuses designed as a direct tax grab, and incentive for banks to pay fewer bonuses.
The IMF report says there is an analogy with VAT, not currently levied on banking. IMF approvingly quoted research by Phillipon and Rensher that suggested up to half the extra pay earned by the banker were ‘rents’ – i.e. undeserved.
These ideas will be presented to the world’s finance ministers and central bankers in Washington in the coming days.
They will find most support in Europe, the US is for a FSC but may drag feet over the FAT, and the likes of Canada may not like it at all.
The need for international coordination is clear says the IMF: “Unilateral actions risk being undermined by .. arbitrage and may also jeopardize national industries’ competitiveness,” which Labour advisers say reflects badly upon George Osborne’s plan to introduce a wholesale levy, unilaterally if necessary.
The Conservatives argue they will get support internationally and their levy will then raise more than a billion. The Lib Dems say the IMF report confirmed their position.
It’s worth noting that the celebrities and development charities (and Lib Dems actually) in the Robin Hood Tax campaign are likely to be disappointed. It is all but ruled out, but the two instruments suggested by IMF have some echoes.
There is no mention of using proceeds for development or for climate change bar a three word reference that the FAT could be used to “address equity concerns”.
The Robin Hood campaign say: “RHT is about tax the bankers and give to the poor, they’ve done the first bit”.
It has been said that Gordon Brown too would be disappointed having dramatically turned up at the G20 finance minister’s summit in St Andrews to force the Robin Hood Tax (aka Tobin Tax, aka Financial Transactions Tax) on to the IMF’s agenda.
I think Gordon Brown would be delighted with the IMF report, because he’ll claim that his brusque negotiating tactics have forced the IMF into its relatively radical proposals.
Less good news for Mr Brown in some of the statistical annexes in the report that display a litany of metrics showing that by some distance Britain has had to support its banking system more than any other country in the world.
In particular the IMF calculates that the the cost of banking crisis that has been unrecovered by the taxpayer, is by far highest in UK: £80bn, 5.4 per cent of GDP vs. Germany (4.8 per cent), and the US (3.6 per cent).
For now though the strange confluence of Goldman-bashing, and the world’s governments’ super-taxing the banks suggests a radically different relationship between banks and society.