Priorities painfully clear as government capitulates to HSBC

July 14, 2015

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Photo: Sean MacEntee

Photo: Sean MacEntee

George Osborne released the first Conservative government budget in two decades last week, with a rise in the minimum wage to a so-called “National Living Wage” receiving particular fanfair – despite not being enough to be an actual living wage.

The National Living Wage Foundation’s calculations are that a national living wage would be £7.85 (£9.20 in London), rather than Osborne’s offer of £7.20 for those over 25 years old. Worse still, the Foundation’s calculations include the payment of working and child tax credits – both of which were slashed dramatically by the Chancellor.

Given the new changes to the tax credits regime, a real living wage would actually be closer to £12.65 for people in London to survive on, with similarly high increases for the rest of the country. This makes Osborne’s announcement little more than a pernicious rebrand of the inadequate minimum wage, whilst also making a mockery of compliant media coverage that branded the announcement as a victory for workers.

Indeed, analysis for the Institute for Fiscal Studies shows that 13 million households will be worse off, with the poor predictably hit the hardest. The poorest third of households will lose around £1000 a year, whilst those in the 20-30% pay bracket being made over £1,200 a year worse off.

Yet there was another change in the budget that was equally damning of the government’s priorities, which was buried under the deluge of misleading coverage on the minimum wage.

Budget Headlines

After intense lobbying from the banking industry, Osborne announced the end of the controversial bank levy, which is levelled on the entire balance sheet of banks over a certain size.

The levy was designed to help address the too-big-to-fail problem, and to raise much needed cash from the very banks that crashed the economy and caused the cuts to our social security.

By applying the levy to banks’ entire balance sheets, the biggest banks were hit hardest by the charge. Although a fairly blunt and rudimentary approach, the levy at least targeted those banks that posed the most risk to the UK economy, as they would require another bailout if they fell in trouble again. These are also the banks most able to pay the levy, and the most responsible for the financial crisis.

Instead the levy will be replaced by a “surcharge” on bank profits alone, rather than a charge on banks’ entire balance sheets. This means that big banks and small banks will pay proportionally the same amount of money, despite big banks being far more risky, and small banks having fewer assets and therefore less ability to pay.

The impact this will have on new “challenger banks” – lauded by the government as a silver bullet to fix Britain’s broken banking sector – is as predictable as it is damaging. Upon the announcements, Virgin Money’s shares dropped by 9%, and Aldermore’s by 15%. The shares of the big 5 banks, meanwhile, surged after the news.

HSBC Budget

To make matters worse, the surcharge will only apply to assets held in the UK, and not to assets held in foreign countries. This will this further discourage investment in UK businesses and jobs that are already starved of credit. It also means that Britain is on the hook for bailing out banks that over-extend themselves abroad, whilst receiving no direct benefit or revenue for the risks entailed from those investments.

The move may well be designed to help redress Britain’s woeful current account deficit, since returns from foreign assets will swell private bank profits and GDP figures. Yet perversely these changes may well have the opposite effect, due to the negative impact on investment in the UK’s real and productive economies.

Put simply, Osborne is taking a bet on monolithic mega-banks to massage his economic figures, instead of encouraging investment in British jobs, businesses and manufacturing – and we all know how that worked out last time round.

The move represents a complete capitulation from the government to the interests of Britain’s biggest banks – to the detriment of challenger banks and British society as a whole.
HSBC in particular will be pleased, having blackmailed the government with the threat of relocation to extract regulatory concessions from government – as Move Your Money warned against on Radio 5 Live last month.

Relocation of HSBC’s HQ would arguably have been a good thing, as it would have transferred the risks of a bail out onto China, whilst retaining HSBC’s retail bank that serves the real economy (albeit badly).

Instead, we’re stuck with the worst of both possible outcomes and the best of neither – on the hook for another massive mega-bank bailout, whilst jeopardising investment in UK businesses and making it even harder for challenger banks to compete.

So, far from proving to be the champion of workers and wages, Osborne’s Tory budget made plain his priorities – protecting the biggest banks, at the expense of everyone else.

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