From the TUC

Banks can’t blackmail us if they’re too big to bail

17 Jun 2011, by in Economics

One of the main arguments deployed against the Robin Hood Tax – and for that matter any tax or regulatory changes – by both politicians (left as well as right) and civil servants is that financial institutions will shift location.

Evidence continues to mount that this blackmail is a bluff: especially when there may be nowhere to go, because the institutions are ‘too big to bail’. Today, top US banker Thomas Hoenig gave the argument further weight in the Financial Times (£).

Simon Chouffot of the Robin Hood Tax campaign has recently explored many of these arguments, so I’d just like to recall a few of them.

Firstly, politicians should consider whether they mind financial institutions upping sticks and moving elsewhere. The finance sector is relatively undertaxed at the moment so it doesn’t bring much revenue in compared to its costs. Job losses would definitely be a blow, but wouldn’t necessarily amount to much: retail banks would need to keep the vast bulk of their staff in the UK and experience suggests the threatened job losses might be seriously overtstated – for example when Martin Sorrell’s PR company WPP moved to Dublin, or Guy Hands’ finance vehicle Terra Firma moved to Jersey, few actual people moved job.

Secondly, the tax impact might be low anyway: the most effective Robin Hood Tax in the world, UK stamp duty on share transactions, cannot be evaded by moving location – nor would a currency transaction levy on sterling.

And then there are the institutions which are ‘too big to bail’. Thomas Hoenig has presided over the Federal Reserve Bank of Kansas City for 20 years and he says:

“Swiss regulators may even favour UBS moving, so that their government would no longer face the risk of bailing out a company that is twice the size of the Swiss economy.”

Banks threatening to leave the UK – where collectively the promise to bail them out is worth £100bn a year, mostly in cheaper borrowing – may find that there is nowhere to go!

As the FT editorialised recently, the big banks’ bluff should be called.