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Daily View: Bankers and the government

Clare Spencer | 09:39 UK time, Wednesday, 9 February 2011

George Osborne

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Following an increase in the bank levy, commentators talk about the relationship between the government and banks.

about the motivations of George Osborne in bringing forward the increase in the bank levy:

"George Osborne is not a stupid man, though often underestimated. He and Vince Cable know that nothing would be more damaging to the Coalition parties than a public perception, lovingly nourished by Ed Balls, that they are 'The Bankers' Friends'. For Cable it would represent the ultimate betrayal of a career built on attacks on the City's bonus culture and 'casino banks'. For Osborne, it would be seen as a reversion to type for a millionaire Tory Chancellor to cuddle up to his banker mates... His critics dismissed it as windy rhetoric and the bankers thought it a bluff; they may all have underestimated him."

The politicking as the real reason for increasing the bank levy:

"It is unusual, to say the least, for the Chancellor of the Exchequer to announce a tax change on the Today programme, rather than to Parliament in a Budget. The timing of yesterday's early-morning revelation by George Osborne that he was increasing the levy on banks seems to have been entirely political. It took everyone, including the banks themselves, by surprise.
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"Mr Osborne, it would seem, needed ammunition to take to the Commons later in the day for his first confrontation with his feisty new shadow, Ed Balls."

The article goes on to suggest the government should put their increases revenues to "good use":

"We have a suggestion: since Mr Osborne has £800 million more than he expected, he should use the money to cut taxes for small businesses, either directly or through extended National Insurance contribution holidays. This would give them an incentive to expand - and be more than just a political gesture."

that the bank levy is not enough:

"These tokens have been wrung out of the banks by ministers fearful of public opinion. And in particular, Osborne is frightened of attack-dog Balls, even though their encounter this afternoon was less than enlightening.
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"But there are plenty of other issues that the government should address in the banking sector and these are being brushed aside. Ministers will now presumably stand back and allow senior bankers to pay themselves multimillion pound bonuses while we are all still feeling the effects of the financial meltdown."

that the banks can deal with an increase in tax but what really unsettles the banks is the uncertainty:

"What really unsettles the banks is the uncertainty. If Mr Osborne can announce an £800 million tax over breakfast, what is to stop him doing it again if he finds himself in another political hole?
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"The idea of Project Merlin was to put an end to the bank-bashing and allow everyone to move on. The banks are now even less sure that they can trust the Government to stick to its side of the bargain."

the publication of the Project Merlin report which she describes as the peace deal between the government and bankers:

"Merlin is unlikely to do enough to address the fundamental problem of an uncompetitive banking industry that is failing to allocate capital to productive investments. And even with these limited reforms Britain's banks will carry on allocating billions to bankers in bonus payments, until the structure of the industry is shaken up radically by the government."

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