Banks to avoid £19bn tax bill despite bailout


by Newswire    
8:30 am - October 18th 2010

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Despite being rescued by taxpayers during the crash, UK banks will avoid paying £19 billion of tax on future profits by offsetting their losses during the financial crisis against their tax bills.

This is equivalent to more than £1,100 for every family in the UK, a TUC report says today.

The TUC report – The Corporate Tax Gap – says that as well as benefitting from an £850 billion bailout from taxpayers and the Bank of England during the recession, banks are able to offset their £19 billion of tax losses between 2007 and 2009 against paying tax on future profits.

The report, authored by tax specialist Richard Murphy, has calculated this double subsidy from the accounts of five UK high street banks – HSBC, Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS (later Lloyds Banking Group) – and HM Revenue & Customs (HMRC) data.

The Corporate Tax Gap warns that banks could soon be paying a lower rate of tax than small businesses.

The corporate tax gap – the difference between the rate of tax set by the Government and the actual rate companies pay – has grown by an average of 0.5% a year over the last decade.

Between 2000 and 2009, the effective corporation tax rate fell from 28% to 21%, much deeper than the headline rate cut from 30% to 28%, says the report.

With the Government planning to reduce corporation tax to 24%, the UK’s largest companies, including banks, will soon be paying an effective tax rate of 17% – three per cent lower than small businesses, who are less able to exploit loopholes and therefore pay a headline rate of 20 per cent.

As a result, the UK will soon have a regressive corporation tax regime, says the report.

TUC General Secretary Brendan Barber said:

Banks caused the global financial crash and triggered the recession that produced the deficit. Yet not only did they take almost a trillion pounds from taxpayers to bail them out, they are now using the losses caused by their irresponsibility to cut their tax bills for years to come.

Small firms have every right to be angry too. Not only are they finding it hard to get credit from the banks, soon they will be paying more tax on their profits than the banks and other big companies.

The TUC has calculated that the banks’ £19 billion double subsidy could pay for the following cuts between now and 2015:
- switching the indexation of benefits from RPI to CPI (£5.84 billion);
- housing benefit (£1.77 billion);
- tax credits (£3.22 billion);
- child benefit for higher rate taxpayers (£3 billion);
- estimated cuts to the science research budget (£3 billion); and,
- stimated cuts in HMRC resources to tackle tax avoidance (£2.1 billion).

From a press release

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Reader comments


Aaand….

*tumbleweed*

So where are our free-market, “wealth creator”-worshipping contingent? It’s been nearly 3 hours – aren’t they even going to *attempt* to justify this? ;)

Despite being rescued by taxpayers during the crash, UK banks will avoid paying £19 billion of tax on future profits by offsetting their losses during the financial crisis against their tax bills.

Well, duh. Did you see how much the banks lost in the last couple of years? HBOS alone made losses of over £10bn in 2008. RBS lost more than £28bn in 2008/9. Even Barclays lost over £3bn. Unless the TUC are calling for basic accountancy laws of carrying losses forward to be scrapped it’s hard to see what the story is here.

1

The excuses will be the same old guff; you can’t tax them too much in case it: harms the economic recovery / London as a financial centre / they all move abroad in a huff/ can’t invest in the future etc., etc.

Meanwhile they will spout reams of self-serving nonsense about benefit scroungers, the cost of immigrants, the wastefulness of the public sector…..

It would be nice to think that the “fairness” agenda of “all being in this together” extended to recouping this loss of tax revenue from the financial institutions as their contribution.

Yeah, I know… fat chance!

As Tim J suggests, isn’t this the same tax treatment of losses that applies to every sort of company?

So what to do? Presumably RM isn’t proposing changing the law so losses can not longer be written off against tax. We could apply something like a windfall tax, and pass a law disqualifying losses born by banks during the crisis from tax exemption. But after-the-fact changes in law are dangerous territory (do we really want governments helping themselves to the ability to change laws in retrospect?). I suppose it’s also true that if you think “banks aren’t lending” because they are trying to rebuild their capital cushions by retaining profits, then pulling another £19bn out of them is going to set that process back somewhat.

The report, authored by tax specialist Richard Murphy…

Ah. That explains it.

4 Luis

Windfall taxes are hardly a novel innovation, and have been imposed in the past with a far less “noble” rationale. It would be bad enough to see the banks acting as they were if we didn’t own them, as it is their actions are unconscionable.

Yes they should be under the cosh to ensure they lend more freely than they are currently doing, and yes they should be directed not to hand out bonuses and pay rises that would make a Rockefeller blush.

As for the dangers of retrospective legislation, whilst I can see the dangers in the abstract, I’m willing to take that fairly small risk given the current situation, and given the apparent unapologetic stance of the banks, and supine inability of the Coalition to bring them to their senses.

Galen,

you don’t see the conflict between wanting banks to lend more freely, and presenting them with a £19bn tax bill that they weren’t anticipating?

So, banks aren’t lending enough and have to meet higher capital adequacy standards and the answer is to take an additional £19bn from them in tax?

On this subject, I remember when RBS first announced that they had lost £28bn in 2008, my first reaction was “they’re not going to pay any tax for years…” Tragic really, but I was in the tax department at the time.

I think rather than piss about trying to retrospectively disqualify certain losses from the usual rule of law, if you want to generate more tax revenue from banks plus discourage risky behavior, then design taxes for that purposes. See here for some discussion.

As a practical matter, I suspect it just wouldn’t be possible to impose a retrospective change in the tax treatment of losses. I’m no expert here, but I wouldn’t be surprised if the government lacks the power to do so legally.

@8

F@!£%ing yes!

And if there was any justice in the world they would take an across-the-board pay cut at the executive level of every department to make up the shortfall – even if it meant that they only got to earn the same as the rest of us for a few years.

It’d certainly sharpen their minds to the thought of splurging at the international finance casino without serious consideration as to how realistic their odds are.

Ah well, a boy can dream…

“Presumably RM isn’t proposing changing the law so losses can not longer be written off against tax.”

Yes, he is….but only for banks.

Yes, a retroactive change in tax law. I’ve (and aren’t you surprised about that!) a post up checking his report. It’s the usual dog’s breakfast with extra added fun and mistakes.

@11

So are you saying that the banks, having by and large treated their customers like dirt on the high-street, lost a fortune playing the stacked game that is the international money market largely funded by their customers, then when their money ran out came to the people of the country (including their customers) to bail them out – likely causing a drop in living standards that will be felt for the next generation, you are saying that the banks are entitled to offset their taxes and keep more of their ill-gotten gains in a manner that those who bailed them out cannot?

Good luck arguing that one.

“So are you saying that the banks, having by and large treated their customers like dirt on the high-street, lost a fortune playing the stacked game that is the international money market largely funded by their customers, then when their money ran out came to the people of the country (including their customers) to bail them out – likely causing a drop in living standards that will be felt for the next generation, you are saying that the banks are entitled to offset their taxes and keep more of their ill-gotten gains in a manner that those who bailed them out cannot?”

Yup, because that is what the law said, indeed, what the law says right up to this very moment in time.

You want to say that losses made in the future can’t be offset against future taxes, go right ahead. I might think you’re wrong but I agree completely that it’s an entirely valid opinion to have.

You want to change laws retrospectively then apologies, but you really can go screw yourself.

@13

In this case the law really is an ass – this isn’t a legal position I’m taking up here, it’s purely moral. These people essentially pocketed the gains from abusing our trust over the course of nearly three decades – and it looks like they’re going to get away with it yet again and expect us to shoulder the losses on their behalf.

Truly, chutzpah must now have a new default definition and frankly, I hope they choke on their caviar and champagne.

13 Tim

Presumably your “You want to change laws retrospectively then apologies, but you really can go screw yourself.” comment is in response to any plans to try and change the “banks are able to offset their £19 billion of tax losses between 2007 and 2009 against paying tax on future profits.” detailed in the OP?

If so, and assuming even if just for the sake of argument that this is more or less correct, what would be so wrong in a government simply saying “Nuh-uh, just not going to happen guys…we have other uses for that £19 billion”. I for one would be much happier seeing it used to offset the worst effects of the cuts that to improving the balance sheets of banks, paying dvidends to shareholders, and spent on salary increases and bonuses for their already over compensated staff.

If so, and assuming even if just for the sake of argument that this is more or less correct, what would be so wrong in a government simply saying “Nuh-uh, just not going to happen guys…we have other uses for that £19 billion”.

Capital flight, I’d have thought. Investors tend to react very badly to Governments changing tax law retrospectively, it looks like gangsterism.

“These people essentially pocketed the gains from abusing our trust over the course of nearly three decades”

Well, no, not really. For they earned profits, yes, and we got the tax from those profits over those three decades. What was the number, anyone know? £5 billion a year? £10 billion?

And the deal over those years was….you make a profit, pay tax. Make a loss and you can hold those losses to offset them against future profits. That was the deal under which we happily took that, whatever it was, £150 billion, £300 billion over those decades.

No, now that you don’t like the deal you can’t change it, not for things which have already happened. As Tim J points out, that tends to be viewed as gangsterism.

Try thinking of it this way. At the beginning of 2007 the government told you what the income tax rate was going to be that year. They also told you what the rules were going to be. What you could deduct, what you couldn’t, what you could put in your pension, your ISA, etc.

Now, now in 2010, the government comes back to you and says, well, you know, we’re short of cash. So, we’ve decided to change the tax laws for 2007, you owe us £10,000 please.

You would, righteously and justly, tell them to fuck off before hanging them from the nearest lamp post, wouldn’t you?

And the rule of law for corporations is less important because?

17

In your somewhat tortured analogy, the individual concerned wouldn’t be some blameless unfortunate subject to the unreasonable demands of an overweening state. He’d be the unreformed junkie expecting to be bankrolled in his continuing habit.

16

Yeah, yeah…we’ve heard it all before when those who have been subjected to windfall taxes in the past wail and gnash their teeth. It’s the same as the scare stories about the flight of the bankers… all mouth and trousers.

19 – you know what capital flight means, yes?

As an expansion of that, it’s established that capital is much more mobile than labour. Retrospective tax changes would be a substantial disincentive to investment. Or are you arguing that tearing up the tax and accountancy laws would encourage more people to invest?

Zambia have it right, and as a bonus this report comes from my favourite placename in all the world, Chililabombwe. Big improvement on Bancroft.

http://www.daily-mail.co.zm/media/news/viewnews.cgi?category=8&id=995463315

20 Tim J

Patronising much? We can all look capital flight up in the interweb. Leaving aside your sui distant grasp of the dismal science for a little, how much more stable is it going to be elswhere that all this capital has flown to? How are you going to quantify it…?

Or is it just another in the series of bogey men used by the right to scare people and cow them into a sense that there is nothing else to be done, there is no alternative, the government’s not for turning, the sky is falling, the bank is too big to fail, etc, etc.

23. Luis Enrique

this is a silly debate – retrospectively changing the law to so that banks couldn’t use past losses to reduce their tax bills would, if it worked, raise the quantity of taxation paid by banks for a finite period of time (i.e. until they’d have used up the losses, after which things would be as they were before) . If you want to raise the quantity of taxation paid by banks, better to design new finance-specific taxes and apply them in perpetuity and target them at “bad” behaviour. Wait and see what this lot come up with: http://www.hm-treasury.gov.uk/press_11_10.htm

23 Luis

We should do both. Why let the bastards of the hook?

Patronising much? We can all look capital flight up in the interweb. Leaving aside your sui distant grasp of the dismal science for a little

I think you mean soi disant (sorry, that one really was hard to resist) and capital flight is hardly a term of art.

how much more stable is it going to be elswhere that all this capital has flown to?

Anywhere else – as in, anywhere where the Government isn’t proposing to screw around with the entire basis of the rule of law. There’s a reason why government’s don’t impose retrospective laws very often, and I’d certainly struggle to think of any UK taxes that have been imposed retrospectively.

25

“I think you mean soi disant (sorry, that one really was hard to resist) and capital flight is hardly a term of art.”

Not that hard to resist obviously, but thanks for proving the point.

“…..and I’d certainly struggle to think of any UK taxes that have been imposed retrospectively”

Because of course it’s not as if we’re in a serious situation or anything…one that might require some out of the ordinary kind of response… far better just to let them bimble along as they always have, lightly regulated…it’s not as if anything could go wrong….

…oh wait….

OK lets allow the banks to offset their losses, as the tories on here say it’s the law.

But we take back every penny that was given to them by the government, (without any of us having a say in the decision) plus interest, now.

Only wish i could do something similar, get a load of money from the state and claim back tax at the same time.

btw, british bankers association says that in 2007 (the height of the boom) the City contributed $8billion in taxation. I will bet any amount of bail out I ever receive that this is somewhat less than the corporation tax rate.

I have a Facebook group to help me with any possible illness when I read these types of stories. It does make you wonder what was the point of saving these bankers. Did we really need to save the financila services? Are they surplus to requirement? Why do we need ‘masters of the universe’? Is a neocon/libertarian belief of letting them fail because they were not to big to fail a justified response?

http://www.facebook.com/#!/group.php?gid=52551239930

There is a rather glaring error in this article. As part of the agreement for the Asset Protection Scheme, RBS are committed to not offsetting their past losses against future tax liabilities.

Retrospective legislation has happened in Britain. I am not sure whether it could happen now with EU law. During World War Two, oil fields belonging to the Burmah Oil Company were sabotaged by British armed forces. The company sought compensation and argued that the fields were effectively requisitioned by British forces. They won the legal argument and the Wilson government retroactively passed the War Damage Act 1965, exempting the crown from paying damages.
http://en.wikipedia.org/wiki/Burmah_Oil_Co._v_Lord_Advocate

29

If it is true that the RBS has agreed (or was forced?) to do this, why hasn’t the government obliged the other banks who took state aid to do the same?


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    Banks to avoid £19bn tax bill despite bailout http://bit.ly/d1IRvJ

  2. Alison Charlton

    RT @libcon: Banks to avoid £19bn tax bill despite bailout http://bit.ly/d1IRvJ

  3. Anna Hedge

    This is a disgrace-banks who benefited from Govt bailouts are now avoiding tax,,http://bit.ly/d1IRvJ

  4. Taobh Clé

    RT @langtry_girl: This is a disgrace-banks who benefited from Govt bailouts are now avoiding tax,,http://bit.ly/d1IRvJ

  5. Shrewmaus

    “@langtry_girl: This is a disgrace-banks who benefited from Govt bailouts are now avoiding tax,,http://bit.ly/d1IRvJ” – Sickening! – M.A.

  6. Liam Paul Gregory

    RT @libcon: Banks to avoid £19bn tax bill despite bailout http://bit.ly/d1IRvJ

  7. Mark Everden

    On the week we get our services slashed, we find out the banks bailed out will avoid £19m tax. It's an utter injustice http://bit.ly/aW7DMv

  8. Mark Everden

    On the week we get services slashed, we find out the banks bailed out will avoid £19bn tax. It's an utter injustice: http://bit.ly/aW7DMv

  9. bethan john

    RT @libcon: Banks to avoid £19bn tax bill despite bailout http://bit.ly/d1IRvJ

  10. John Edginton

    RT @yokelbear: On the week we get services slashed, we find out the banks bailed out will avoid £19bn tax. http://bit.ly/aW7DMv

  11. sheppeyescapee

    RT @libcon: Banks to avoid £19bn tax bill despite bailout http://bit.ly/d1IRvJ

  12. dontplaymepayme

    RT @libcon: Banks to avoid £19bn tax bill despite bailout http://bit.ly/d1IRvJ

  13. Emma Adams

    RT @libcon: Banks to avoid £19bn tax bill despite bailout http://bit.ly/d1IRvJ

  14. Jeevan Rai

    RT @yokelbear: On the week we get services slashed, we find out the banks bailed out will avoid £19bn tax. It's an utter injustice: http://bit.ly/aW7DMv

  15. Justin Nelson

    Banks to avoid £19bn tax bill despite bailout | Liberal Conspiracy http://ht.ly/2V0v0

  16. Peter D Cox

    Further £19bn for failed banks http://ow.ly/2UZZH while #ConDems slash the economy to death. Good thinking.

  17. Richard

    i might have just experienced a slight dip in motivation RT @libcon: Banks to avoid £19bn tax bill despite bailout http://bit.ly/d1IRvJ

  18. Matt Jeffs

    “@libcon: Banks to avoid £19bn tax bill despite bailout http://bit.ly/d1IRvJ” Why are none of us shocked? Osborne's cuts are fair? My arse.

  19. Angela Pateman

    RT @libcon: Banks to avoid £19bn tax bill despite bailout http://bit.ly/d1IRvJ

  20. Martin Warne

    RT @libcon: Banks to avoid £19bn tax bill despite bailout http://bit.ly/d1IRvJ – we're all in this together? (sound of hollow laughter)

  21. Rooftop Jaxx

    RT @mwarne: RT @libcon: Banks to avoid £19bn tax bill despite bailout http://bit.ly/d1IRvJ – we're all in this together? (sound of hollo …

  22. Elly M

    What. WHAT?!!!!RT @libcon: Banks to avoid £19bn tax bill despite bailout http://bit.ly/d1IRvJ

  23. elgan

    RT @peterdcox: Further £19bn for failed banks http://ow.ly/2UZZH while #ConDems slash the economy to death. Good thinking.

  24. Denny

    RT @mwarne: RT @libcon: Banks to avoid £19bn tax bill despite bailout http://bit.ly/d1IRvJ – we're all in this together? (sound of hollo …

  25. Andy Bean

    RT @libcon: Banks to avoid £19bn tax bill despite bailout http://bit.ly/d1IRvJ

  26. Ceri

    RT @kindjourneys: What. WHAT?!!!!RT @libcon: Banks to avoid £19bn tax bill despite bailout http://bit.ly/d1IRvJ

  27. Ben Pawley

    RT @mwarne: RT @libcon: Banks to avoid £19bn tax bill despite bailout http://bit.ly/d1IRvJ – we're all in this together? (sound of hollo …

  28. Sam Hogarth

    Just remember, we are all in this together, says a cabinet of millionaires. Clearly not: http://bit.ly/aW7DMv

  29. Anubis

    RT @samhogy: Just remember, we are all in this together, says a cabinet of millionaires. Clearly not: http://bit.ly/aW7DMv

  30. Adam Fish

    RT @samhogy: Just remember, we are all in this together, says a cabinet of millionaires. Clearly not: http://bit.ly/aW7DMv

  31. Khlari

    RT @samhogy: Just remember, we are all in this together, says a cabinet of millionaires. Clearly not: http://bit.ly/aW7DMv

  32. Teresa

    RT @samhogy: Just remember, we are all in this together, says a cabinet of millionaires. Clearly not: http://bit.ly/aW7DMv

  33. gwenhwyfaer

    RT @samhogy: Just remember, we are all in this together, says a cabinet of millionaires. Clearly not: http://bit.ly/aW7DMv

  34. Martin Oz

    RT @samhogy: Just remember, we are all in this together, says a cabinet of millionaires. Clearly not: http://bit.ly/aW7DMv

  35. www.TheTruthHurts.co.uk » Blog Archive » Banks to avoid £19bn tax bill despite bailout

    [...] Banks to avoid £19bn tax bill despite bailout [...]

  36. www.TheTruthHurts.co.uk » Blog Archive » Vodafone dodge £6bn Tax bill

    [...] You Government only cares about taxing you and I and taking as much of our money and wealth as possible, huge companies get off with almost everything they do. Vodafone have been let off up to £6bn in taxes and did you remember the story the other day saying after the 0.04% Bank tax, the Banks will be let of £19bn in taxes! [...]





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