Penalising the innocent while the guilty go free could ensure that big players – and thousands of jobs – are lost to the UK warns Brian Monteith
The first tremors of a coming financial earthquake were heard this week when HSBC dropped heavy hints that it is going to relocate its headquarters outside the UK. Speaking in Hong Kong, HSBC chairman Douglas Flint said: “We are beginning to see the final shape of regulation, the final shape of structural reform and as soon as that mist lifts sufficiently we will once again start to look at where the best place for HSBC is.”
The reason? The possibility of Brexit? No, the move will be to the far east, not Paris or Frankfurt.
What then? Why the decision to review the City of London location of the bank’s headquarters? The answer is deeper, high corporate taxes, levies and penalties that banks in the UK have been enduring with no end in sight.
HSBC moved its domicile from Hong Kong to London in 1993 but, faced with a large hike in bank taxes this year, is joining Standard Chartered, which makes most of its profits in Asia but also has its HQ in London, in looking into making a big move. With the banks will go not just the thousands of jobs that will have to relocate, but the corporate and banking taxes that will be paid elsewhere and all the associated local business activity from sandwich bars and caterers to professional, consultants and public service workers in transport and the utilities.
Rather than jailing the individual bankers, dealers and brokers that have been caught defrauding the public over the last ten years, our governments have been taking the far easier option and penalising the banks at a corporate level. These institutions employ tens of thousands in London and across the UK and are vital to the financing of many more enterprises and their jobs, but it makes for good headlines when politicians are hard on the banks, rather than hard on the causes of banking scandals – those executives that have been involved in levels of fraud, such as interest rate fixing, that are off the scale.
I cannot accept there are not the laws available to bring forward prosecutions – not least when there are e-mail trails documenting the culprits’ names and their illicit processes – but if that is so then the law needs changed. Conservatives in particular should be no friend of corporate greed; it undermines the moral case for capitalism which is built upon the freedom of the individual to trade and compete. A far tougher stance on anti-trust law is taken in the United States than in the UK or the European Union and our politicians could do well to learn from there.
Unfortunately the political culture of both the Conservative and Labour parties has morphed into a devotion to corporatism that leaves them without a cigarette paper between them, marginalising the corner grocer, stifling the entrepreneur and locking us into ever increasing regulation that seeks to eradicate risk.
But risk is necessary to help differentiate between choices and inspire creativity, just as competition between trading nations is better than the homogenous conformity that stifles economic growth by eliminating competitive advantage. It is no coincidence that the European Union is in decline relative to the rest of the world while the City has been blossoming by being outside some of the EU’s constraints.
Enjoying the opiate of their supposedly “one-off” penalties when financial times are tight, government ministers and opposition leaders hint at increasing or widening banking taxes rather than reducing them, and still the culprits of fraud walk free. If it’s not the banks it is the energy companies whose profits have been manufactured by the introduction of regulations devised by the government.
Our politicians, conscious no doubt of their own responsibilities for the financial crash, have no wish to go after those individuals that sanctioned the interest rate fixing and the questionable deals that brought companies down – when some public prosecutions would send a message to everyone that such scandalous behaviour will not be tolerated in future and help emphasis the fact that the majority of bankers are good honest people.
There is a lesson here not just for UK politicians, but for John Swinney too. Now, laden with new powers to cut or raise taxes – and with more powers to come, irrespective of whether or not full fiscal autonomy is granted – Swinney faces the question of how to finance the extra benefits that Scots enjoy compared to their English, Welsh and Northern Irish siblings. Free personal care, free tuition fees, free pensioner travel, free prescriptions, no matter how worthy and popular have to be paid for by somebody, because they are not free, they bear a cost. To maintain these and other expensive policies taxes in Scotland may have to go up.
Business rates are already penalising Scottish companies more than they do in the rest of the UK – and will go up further – but a rise in personal income tax, on top of other taxes that Swinney has been increasing, such as his failed replacement for Stamp Duty, could mark the penalisation of our entrepreneurial class – the self employed. Introducing a 50p top rate will raise little but give a big signal to those that can move to think about where they, like HSBC, should be domiciled. With mobility ever more flexible thanks to the internet, the ties that bind our self-employed to Scotland are much, much looser.
The problem with raising taxes in Scotland is that the tax base of the wealthiest is already low – around 14,000 people – which means that to raise decent money that would make an impact on the Scottish Government’s budget the working population will have to pay more. Taxing the wealthy results in lower revenues by reducing that tax base – increasing the need to tax the low-paid. We could then see a rise in the standard rate of income tax in Scotland with the same negative effects – people of creativity and ambition moving away.