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I have noticed a sea change in the stance of the banking sector in recent weeks – and not before time in my view. Now that the Project Merlin agreement with the largest UK banks on lending, pay and bonuses has been announced, Treasury sources said that the time had come for us to move from “retribution to recovery” with regards to financial services. Officials are looking for a shift in the argument away from endless talk about bonuses to meaningful discussion on how banks can play a part in building UK Plc.
Under Project Merlin, banks will lend about £190bn to businesses in 2011 – including £76bn to small firms – limit bonuses and reveal some salary details of their top earners, major players such as HSBC, Barclays, RBS and Lloyds Banking Group have all signed up.
Bob Diamond, once described as the “unacceptable face of banking”, was quizzed by a Treasury Select Committee in January and he made his standpoint very clear:
“There have been apologies and remorse from bankers. What we need is a dose of confidence; we need to think about what’s best for the economy of the UK.”
“I really resent the fact that you refer to this as blackjack or casino banking or rogue trading,” he said. “It’s wrong, it’s unfair, it’s a poor choice of words. We have some fantastically strong financial institutions in this country and frankly they deserve better.”
I tend to agree, whilst it is clearly true that the financial services sector is culpable in causing economic carnage across the globe, it is not the fault of the entire sector and the industry is not without significant merit. The report prepared for the City of London Corporation by PwC in December estimated that for 2010 the financial sector as a whole made a total tax contribution of £53.4bn to the UK economy – that’s 11.2% of the total government tax receipts for all taxes that year.
The sector is not yet out of the woods, however, although George Osborne ruled out imposing a formal bonus tax he did increase the levy on banks to £2.5bn this year, costing an extra £800m. The political storm still rages also, Liberal Democrat Treasury spokesman Lord Oakeshott resigned after the Merlin agreement was announced, branding Treasury negotiators “incompetent”.
My own view is financial services is a global business and very portable, if the UK doesn’t want the tax receipts there will be plenty of other countries who will gladly take it. After making necessary regulatory changes we need to draw a line under demonising a critical part of our GDP.
As ever, I would be interested to hear your views on this; should we move on and stop the bank bashing – or do they deserve everything they get?
Andrew McIntee is a Director and Head of Financial Services practice.
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February 15th, 2011 at 4:04 pm
I very much go along with the necessary recognition that the approach to the banks’ role must exploit positive elements of their contributions. The value of doing so would be increased by a better understanding of the real risks and consequences of an emigration of talent and corporate activity. How genuinely feasible are those options for individuals and organisations; and what really are the impacts on UK?