Tax Take From City Firms Falls By Half

[Rachman]

at the moment, finance is a bit tight, money being used to shore up the bankers balance sheets....I guess they may have lent a little too much to people who couldnt pay it back.

of course it is, and it's primarily the government that is perpetuating this ridiculous myth about all the money being pumped into banks - whilst at the same time demanding the banks increase their capital reserves, pay 12% on the 'money' the government has insisted they drop on their balance sheets and insisting at the same time the banks increase their lending to 'excessive' levels again and also reduce their margins. It's utterly utterly stupid and it's even worse that many people in this country seem to want to believe it.

Many businesses, good and bad, sometimes call it wrong - some accidentally, some recklessly, but even the most prudent businesses can balls up. At the moment, a lot of the bad debt in the UK is not on CDOs or American crap, it's not worked its way through yet and it will show to be to British people - British businesses that fail, British people that have overstretched - will it be different then - and do you want the banks to be lending today (or tomorrow) to people at levels that are not appropriate to cover the risk ? And if you've done it in the past, how do you fix that and cover your past losses ? Other than by doing what they are doing ?

[weebag]

You can't perform a bad action but make it ok by smiling cheerfully while you do it.

Thats rubbish actually.

When picking up dog crap (defo a bad action), if you smile, it helps supress the gag reflex.

[weebag]

The state holds a monopoly in place by force.

When you have to go crawling to it in order to do even the most basic of things, they aren't doing you a favour.

Is it 'men with guns'?

[@contradevian]

absolutely, but am I as wrong as others are about the City ?

Are you suggesting it's 'right' that we have our inner cities full of single mothers and feral kids, who are totally supported by the State, who burgle us, who cause the antisocial behaviour, who do fill up the hospitals with unnecessary cases, who wuite frankly cost us an absolute fortune for no benefit to the country and are growing in number. Please tell me, what good do they do ? (and I know the obvious comeback to that....).

Because your City chums helped outsource all the jobs to China, India. Look about you. Hardly any industry left at all in London, so those people have no jobs and there are not enough (trench) wars to kill some of these people off.

And what is the City doing about? Are you funding any Inner City projects? Are you aware that Canary Wharf is situated in one of Londons poorest borough's - Tower Hamlets? It makes me wonder why anyone in TH is having to pay rates at all with a major international money earner on its doorstep.

The City is hardly an inclusive employer anyway, the best jobs that many locals would qualify for would be poorly paid cleaning jobs

[Bloo Loo]

snip? And if you've done it in the past, how do you fix that and cover your past losses ? Other than by doing what they are doing ?

Im sure billions in bonuses is helping.

[keeprenting]

many of them have made a large profit for their investors (and themselves) - and who are a significant number of those investors ?

Where banks do do a good job is that they often are able to provide an accessible source of funding - it would be much tougher for people to actually find people with money and to get it out of them at decent rates if the banks did not exist or did not operate as they do. Some of those are obviously good borrowers and lenders and some obviously are not. But we have to have the lending - it funds all sorts of 'worthy' development.

People make mistakes - some of them huge, they also make good decisions as well - so why not focus on some of those too ?

Private equity funds made big leverage-fuelled profits for their investors (yes, a lot of whom are pension funds) during the boom years. But, as we all know, leverage works the other way when things are going downhill, and those same pension funds are now selling off their interests in private equity funds at a massive discount.

I agree re banks providing an accessible source of funding. Nobody's saying the banks should be abolished altogether. The point is that a lot of their activities have been less than "worthy."

[D.C.]

People make mistakes - some of them huge, they also make good decisions as well - so why not focus on some of those too ?

show me

oh, just grow up.

Rachman, you are digging yourself a really big hole with that one.

As you are so intent on defending the good, honest hard working bankers who deserve their enormous salaries and bonuses (after destroying the entire world's economy through greed and stupidity), please do enlighten us.

What are these wonderful good decisions and value to society that you speak off?

I know people go into teaching or nursing to 'help people' and join the army to 'fight for Queen and Country' etc but I have yet to come across a hedge fund manager who got into the business to 'do some good in the world'.

Please do let us know so that we can focus on these 'good' attributes in the future.

[interestrateripoff]

who made the tin hat

[Sybil13]

Revenue from Financial Services Sector

CEBR March 2009 originally found on a search on Yahoo under the heading "Expect the Housing Market to Crash Soon."

A special study by cebr estimates that the tax take from the financial service sector infinancial year 2009/10 will be only £39 billion, down from £67 billion in 2006/07. While the bank recapitalisations and asset guarantee schemes have attracted most attention, it is the collapse in revenues that is the greatest risk to the governmentʹs finances in the post credit crunch era.

Our study corroborates the recent research by Kenneth Rogoffand Carmen Reinhart on the aftermath of financial crises. They point out that the real value of public debt tends to explode post financial crisis. Interestingly, theyfind that the ‘main cause of debt explosions is not the widely cited costs of recapitalizing the banking system’but rather, the ‘collapse in tax revenues that governments suffer in the wake of deep and prolonged output contractions, as well as often ambitious countercyclical fiscal policies aimed at mitigating the downturn.’

The accountants Price Waterhouse Coopers have estimated that thefinancial service sector generated £67 billion in tax revenue in 2006/07 based on a detailed study of the accounts of a number of major financial institutions and extrapolating. This estimate looks roughly right and is in line with our calculations. The biggest item is of course income tax â€Â£15 billion –followed by corporation tax at £12 billion. But the other items are more surprising â€Â£10 billion from VAT which is unexpected from a sector that is VAT exempt (but VAT is of course collectedin its inputs); £8 billion from employers National Insurance contributions which are collected all the way up the earnings scale on all earnings including bonuses; £7 billion from withholding taxes on interest payments and the rest mainly from stamp duties, employees NICsand business rates.

But the huge losses, job cuts and bonus cuts together with the fall in interest rates paid will cause these sources of revenue to collapse. The Chancellor is set to lose £9 billion in corporation tax revenue, £10 billion from less income tax and National Insurance contributions, £2 billion from stamp duty and £3 billion from withholding tax. Adding in all the other sources of revenue, the total tax take is forecast by cebrto drop from £67 billion to £39 billion. Moreover, some of these hits are likely to be long lasting. The scale of the losses that the banks can bring forward means that they will have to pay little corporation tax for many years. Our forecasts indicate that job numbers and bonuses will remain depressed until 2013 atleast. Our tentative forecast is that the tax take will rise toonly £46 billion by 2012/13.

This hit on tax receipts is a real blow to Chancellor Alastair Darling’s budget hopes. His predictions in the Preâ€Budget Report do not appear to have factored in more than half of the tax revenue decline for 2009/10 and there is little evidence that the longevity of the problem is yet fully understood in the fiscal part of the Treasury.Crudely, UK spending policy in the New Labour years has been to use the heavy tax take from the financials sector to fund lavishpublic spending, particularly in the Labour fiefdoms of Scotland, Wales and the North of England.Now the money is no longer there and the cebrevidence to the House of Lords Select Committee on the Barnett formula suggest that public spending in these areas will need to be slashed by around 5% of local GDP (or by about 9% of local public spending) to take account of the loss of revenue from the financial service sector.

There is scope for argument about whether the bank bailouts represent real public spending, since it is more than likely that the government will eventually get most or even all of its money back. But this loss of tax revenue is areal long term revenue hit –equivalent in scale to 29% of the NHS Budget, 57% of the schools budget, or 79% of the defence budget.

[uncle_monty]

people seem to think factories and manufacturing are top of the world, so tell me, how are those businesses financed - how can they finance their R&D, their new factories, the new hires, the machinery, the products, the distribution network - they could wait till they have the cash - but back off Planet Zarg, that would slow down the development of their (and other) other businesses. Debt can be good, it can be useful, it can help businesses. A lot of people here seem to miss that. If we did not have debt and accessibility to finance, which of many of the world's technological advancements would you like to stop first ?

Rachman,

The staid world of bank corporate lending is a long way from CDOs, CDSs, leveraged buyouts and hedge funds strategies, wouldn't you say? The former is "banking" in its purest sense. The latter is nothing short of spivvy gambling backed by a government guarantee (whether implicit or explicit).

Monty

[uncle_monty]

All of these things seemed to work before the rise of Investment Banks, Hedge Funds, CDOs, etc, etc. Banks in their old, simpler forms worked. Since the Emperor got his new clothes things have become rather disfunctional.

[Tips hat]

Rather more eloquently and succinctly put than my own effort.

Bravo!

[daedalus]

Because your City chums helped outsource all the jobs to China, India. Look about you. Hardly any industry left at all in London, so those people have no jobs and there are not enough (trench) wars to kill some of these people off.

And what is the City doing about? Are you funding any Inner City projects? Are you aware that Canary Wharf is situated in one of Londons poorest borough's - Tower Hamlets? It makes me wonder why anyone in TH is having to pay rates at all with a major international money earner on its doorstep.

The City is hardly an inclusive employer anyway, the best jobs that many locals would qualify for would be poorly paid cleaning jobs

Is this the same Tower Hamlets where approximately a large proportion of the female population is kept effectively enslaved and unable to contribute financially?

Is this the same Tower Hamlets where the local councillors are more focussed on minority interests and left-wing politicking than actually doing something for the area?

These factors may have something to do with the poverty, you know?

The City generally employs people who are expected to be good at their jobs by virtue of having a good education and working hard. If many locals in Tower Hamlets have poor educational standards and are lazy, I'd say that is a problem for them and the local council they elect.

[Rachman]

Rachman,

The staid world of bank corporate lending is a long way from CDOs, CDSs, leveraged buyouts and hedge funds strategies, wouldn't you say? The former is "banking" in its purest sense. The latter is nothing short of spivvy gambling backed by a government guarantee (whether implicit or explicit).

Monty

absolutely, so why say all bankers and all banking is shti - which is what is being implied by many, whether they are aware of the wide range of services, products and millstones or not - because someone told them and they believed it.

I have been 'admonished' for publicly laughing at some of the hairbrained refi schemes proposed by companies - then been flabbergasted when some joker bought it. I've also told clients in no uncertain terms not to touch things with a barge pole and guess what, they went somewhere else and got a 'it's great' and refused to pay my bill. Several more of these have tanked than have been winners.....

Also, LBOs themselves - what I have spent the last decade or so doing, are not necessarily a bad thing - they can and have made a lot of businesses leaner and, those that went through the process earlier (pre-2006) in particular are often in much better shape to survive the current recession than some of those who have not. The only thing stopping PE at the moment is the cost of finance (in fees and the lower LTVs possible - though, and again I have been rollocked for commenting on this to clients, it's not a bad thing that perhaps they don't leverage quite so much - to be told, we pay you to do the words, shut up about the numbers). They have kept people in jobs as well as some people losing them - they have bailed out screwed companies and kept jobs, they have offered a chance for decent divisions of crap companies to flourish - of course not the only way that can happen, but a way that can often permit management and staff (to a greater or lesser extent) to participate.....

[uncle_monty]

absolutely, so why say all bankers and all banking is shti - which is what is being implied by many, whether they are aware of the wide range of services, products and millstones or not - because someone told them and they believed it.

I have been 'admonished' for publicly laughing at some of the hairbrained refi schemes proposed by companies - then been flabbergasted when some joker bought it. I've also told clients in no uncertain terms not to touch things with a barge pole and guess what, they went somewhere else and got a 'it's great' and refused to pay my bill. Several more of these have tanked than have been winners.....

Also, LBOs themselves - what I have spent the last decade or so doing, are not necessarily a bad thing - they can and have made a lot of businesses leaner and, those that went through the process earlier (pre-2006) in particular are often in much better shape to survive the current recession than some of those who have not. The only thing stopping PE at the moment is the cost of finance (in fees and the lower LTVs possible - though, and again I have been rollocked for commenting on this to clients, it's not a bad thing that perhaps they don't leverage quite so much - to be told, we pay you to do the words, shut up about the numbers). They have kept people in jobs as well as some people losing them - they have bailed out screwed companies and kept jobs, they have offered a chance for decent divisions of crap companies to flourish - of course not the only way that can happen, but a way that can often permit management and staff (to a greater or lesser extent) to participate.....

Rachman,

You make several good points, most of which I agree with.

At the risk of appointing myself spokesman, I believe that what really sticks in people's craw is the fact that the "staid banking" that has traditionally supported real business has been contaminated by the "spivvy" banking (Private Equity, structured products, the whole gamut of hedge fund "strategies", etc.).

I personally would like to see the banks separated. Retail and small / medium corporate banking in a regulatory ringfence. low risk, low return, low volatility,much the same as utilities. Then large/international corporate, trading, IB, PE, derivaties, structured products in a less regulated environment. Bring back partnerships at the so-called Bulge Bracket IBs - let's see what risks are taken when individual Masters of the Universe have real "skin in the game". Also, no single institution on the "gambling" side of the fence would be too big to fail. Larger / international corporates typically have internal corporate finance / treasury teams, so are equipped to look after themselves in this new, big bad world.

As bankers continually claim to add real value in PE, LBOs, Derivatives, etc., they should have no problem in proving this in an environment bereft of UK taxpayer subsidy or insurance.

My 2p.

[Guest BoomBoomCrash]

Apparently, we don't need the City, it's full of disingenuous liars, cheats and probably nonces.

We'll ignore how it supports a lot of 'worthy' things in society...... because we quite like the idea of others who earned more than us 'suffering'.

[cue lots of people wishing me to die or at least attempt to kill myself, cue people saying, "no, it's not that, it's that we own them" or "no, they got us into this mess"]

but in simple terms, this government (and others) needs the tax revenues from the City, whether we can make the way the City operates more 'acceptable and ethical' is a different question, but we most definitely need the money it generates, if only to feed our 'Untermensch'.

Go jump off a bridge you lousy sack of shit

Edited July 29, 2009 by BoomBoomCrash

[Rachman]

Go jump off a bride you lousy sack of shit

your bride, or mine ?

[Rachman]

Go jump off a bride you lousy sack of shit

your bride, or mine ?

[Rachman]

Go jump off a bride you lousy sack of shit

your bride, or mine ?

[Guest BoomBoomCrash]

your bride, or mine ?

As you prefer.

[Guest BoomBoomCrash]

Rachman just epitmoises (either by way of contrived parody or just by being a grade A twit) the 'Masters of the Universe', coke snorting, underage prostitute ******ing, arrogant and entirely self-obsessed city boy stereotype. I mean here he is talking up an industry that nearly collapsed the world economy. It's bad enough these parasites had to be bailed out, but Rachman would have us be grateful for the privilege of doing so.

[Guest X-QUORK]

My 2p.

+2p

Exactly how I would like to see things changed. You must come around for dinner sometime Monty.

[uncle_monty]

+2p

Exactly how I would like to see things changed. You must come around for dinner sometime Monty.

Very kind. I would be delighted.

[Democorruptcy]

Labour spin story trying to try excuse the fat cat bonuses as if the country needs them.

Are savers currently being ripped off by high bank margins supposed to feel warm inside now?

[Rachman]

Rachman just epitmoises (either by way of contrived parody or just by being a grade A twit) the 'Masters of the Universe', coke snorting, underage prostitute ******ing, arrogant and entirely self-obsessed city boy stereotype. I mean here he is talking up an industry that nearly collapsed the world economy. It's bad enough these parasites had to be bailed out, but Rachman would have us be grateful for the privilege of doing so.

Is your daughter working tonight then ? Shall I send my driver to pick her up at the usual place. And this time, can she stop off at Ahmed's and bring me a couple of baggies, I love a bird that lets me chazbap.

[quibble]

Banks are important, but I just don't understand why politicians seem to think they're more important that other British industries.

When they retire from office, politicians get jobs with JP Morgan - not the likes of Corus or Rover.