As Osborne ignores advice on how much banks can borrow, has the government decided to protect bank profits and bonuses rather than protect Britain?

In June 2012, John Vickers who headed the Independent Commission on Banking was very upset that some of his recommendations were rejected by the Chancellor, George Osborne. Was it just his hurt pride? Or does he spot another rip-off being pulled over our heads while we aren't comprehending?

The most important recommendation rejected by Osborne was:

"All ring-fenced banks with a RWAs-to-UK GDP ratio of 1% or more should have their minimum leverage ratio increased on a sliding scale (to a maximum of 4.06% at a RWAs-to-UK GDP ratio of 3%)."

(RWA - Risk Weighted Assets)


What this means in practice:

Never forget, the Credit Crisis was caused by banks borrowing too much. This leverage ratio refers to the ratio of how much a bank can borrow (and then lend on to its customers, or play with in the banking casino) relative to its Tier1 Core Capital. The higher the permitted leverage multiple the more the bank can borrow.


The banking industry claims that setting the higher requirement would be bad for the economy - higher prices and lower growth. The Bank of England, in a report from April 2011 (see later), says this isn't true. Who should Osborne believe? The City which provides 50% of Tory party funding, or the Bank of England which doesn't?


The Future of Banking Commission, set up after the Credit Crisis hit, reported in 2010 that bank executives have every reason to maximise the money they can borrow as it boosts the return on equity and net revenue. Page 60 of the report (scenario: banks can borrow at 4% and lend at 5%) provides some figures illustrated on this graph:

"The FSA has noted that prior to the financial crisis, many investment banks calculated net revenue and then determined the total size of their employees' bonuses by reference to a compensation ratio (typically between 40% and 50%). As Sir Martin Taylor has noted,

'Paying out 50% of revenues to staff had become the rule, even when [because of accounting rules] the ‘revenues’ did not actually consist of money.'"

The “Tier1 Core Capital” is money held by a bank that nobody has the right to take away.

This includes

-         Retained profits

-         Equity capital.

Retained profits are those profits that are not paid out as bonuses to staff or as dividends to shareholders. Retained profits belong to the bank, held as reserves. 

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Tax havens boost their lobbying efforts in the UK and Brussels

by Melanie Newman, Bureau of Investigative Journalism

Britain’s Overseas Territories and Crown Dependencies have been boosting their lobbying strength in the UK and Brussels in recent years amidst growing criticism of tax havens.

NGOs such as Christian Aid have argued that the Territories’ image as tax havens puts them at ‘serious reputational risk’ and if they continue with their current policies ‘then their international profile as facilitators of corruptions and tax evasion will increase’.

Jersey, Guernsey and the Isle of Man have also come under fire, most recently from Labour leader Ed Miliband, who said the Dependencies must reveal the identities of tax evaders with money hidden on the islands.

‘I wouldn’t describe Bermuda as a tax haven. I’d describe Bermuda as being a very well run country that is able to have low taxes because it’s got a very strong economy.’ 
Henry Bellingham, Conservative Minister for Overseas Territories

In an attempt to counter such attacks, these offshore jurisdictions have been ramping up their PR and lobbying endeavours. They have also been lobbying in Brussels on European financial regulation.

Cayman Islands 
One recent example of this stepping up of ‘reputation management’, as revealed by the Bureau this week, was the hire of Lord Blencathra by the Cayman Islands as its UK representative.  Appointed in November 2011, his remit was to lobby in Westminster and Brussels and to fight off attacks on ‘tax neutral jurisdictions’. He told a press conference the financial services industry had to ‘justify its existence’ and that European financial regulation posed a threat to the Islands.

The Islands’ financial services industry lobbyist, Cayman Finance, has been represented separately by PR firm Media House International since April 2009. Chairman Jack Irvine is regularly quoted in the island press attacking critics of tax havens such as the Tax Justice Network and Labour MP John Cryer.

Media House has also employed Lord Blencathra as a public affairs consultant since 2008, though the peer told the Bureau his work for the firm did not involve the Caymans.

Bermuda
Business Bermuda, an organisation working with Bermuda-resident companies and the government, has also made moves to deflect criticism.  It hired financial PR and lobby firm Pelham Bell Pottinger in February 2011 with a remit to ‘develop and promote Bermuda internationally as the jurisdiction of choice’.

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A return to Victorian inequality, says Oxfam

As FTSE 100 bosses' pay continues to rise, Chris and his wife come to terms with growing inequality in the UK

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Rip-off News round-up. Our pick of the last week's media (Thu 14th Jun)

UK graduates contribute to UK Plc almost 10 times what it costs the state to educate them

"In 2000 the UK had the third highest number of graduates among advanced industrialised nations. By 2008 it had fallen to fifteenth because competitor nations had been investing at a faster rate" BBC

UK Uncut allowed to challenge Goldman Sachs tax deal

'Sweetheart' deal between HMRC and Goldman Sachs can be reviewed for legality, judge rules.  GUARDIAN

Fury as top bosses' pay soars yet again: Average rise of 12% for FTSE 100 fatcats
Manifest/MM&K survey shows under 'remuneration awarded' measure, executive pay rises in the top 25 FTSE 100 firms topped 41%. Overall, bosses of FTSE 100 companies enjoyed an average 12% rise in their take home pay last year, while their employees received 1%, well below inflation. DAILY MAIL

Housing shortage to turn under-30s into 'generation rent'

Study predicts 1 million more youngsters will be 'marginalised' as many face up to living with parents well into their 30s. GUARDIAN

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What's the difference between the Food Standards Agency and the Financial Services Authority?

The Financial Services Authority has always let banks get away with murder. Will its replacement, the Financial Conduct Authority, do any better?..

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Compulsory Financial Education in Schools - can the government continue to dodge its responsibility?

"We're a financially illiterate nation, with millions caught by misselling, overborrowing and being ripped off. Is it any surprise we’ve just had a debt imbued financial crisis. This must change. Companies spend billions on marketing and teaching their staff to sell – it's time we got buyers' training. The most cost effective way to start is to ensure every child in the country gets a basic understanding of personal finance & consumer rights before leaving school."
Martin Lewis, Moneysavingexpert.com

Of all the iniquities we Britons have to endure, perhaps the most fundamental rip-off, the most insidious betrayal, has been perpetrated by successive governments of the UK. It is the continuing failure to provide compulsory and robust financial education in schools.

After decades of foot-dragging by the authorities, Martin Lewis of MoneySavingExpert.com gave the campaign for financial education a push forward in 2011 when he collected in excess of 100,000 names on a petition to Parliament. The government’s initial response to Lewis’ petition was that it is already included in PSHEE (Personal, Social, Health and Economic Education) lessons. In a previous post we at Ripped-Off Britons pointed out the inadequacy of this. Lewis too commented:

"The petition is about compulsory financial education. PSHE, which it mentions, isn't compulsory, nor is personal finance a substantial part of this.”

The government also points to the Money Advice Service, formerly called the Consumer Financial Education Body, set up by the Financial Services Authority (FSA) in 2010. The government has handed control of this body to the Financial Conduct Authority (FCA), the successor (same snake, new skin) of the anaemic and discredited FSA.

The members of the board [of the Financial Education body] must be persons appointed, and liable to removal from office, by the FCA (acting, in the case of the chair or chief executive, with the approval of the Treasury). 

Could the government be planning that this FSA/FCA controlled "Financial Education Body" will be responsible for Financial Education in Schools? This would be the equivalent of putting Herod, infamous in biblical times for the slaughter of the infants, in charge of British childcare policy. What with the FSA’s reputation for protecting consumers being about the same as Herod’s for protecting children. (To be fair, Herod had nothing against children in principal – he had fourteen of them though he did execute three). The FSA has admitted it has a poor record for regulation. The level of fines it has imposed is no deterrent, being a miniscule fraction of bonuses (zoom into the graph above, and you may just be able to spot the fines). And it was exposed by the consumer organisation Which? for shielding mis-selling financial institutions. Which? complained in May 2012 that the FSA had banned 327 misleading adverts in 2011, but had refused to identify which adverts they were. Which means if you bought something based on one of these misleading adverts, the FSA won’t tell you.

We should be appalled but not astonished if the government does plan to hand financial education in schools over to the financial industry and its regulators.

We should be appalled because, whether directly or not, this would become a marketing exercise for the finance industry. In 2008 HM Treasury, the UK finance ministry, commissioned a report by Otto Thoresen, then CEO of the insurer Aegon UK and now Director General of the Association of British Insurers. The report, on how best to deliver generic financial advice to the nation, stated:

  

The Review’s research also indicates that an effective Money Guidance service can drive behaviour change. Eight out of ten users of the prototype [money guidance] services surveyed went on to take at least one action within a week or so of using the service. Of these, over half took specific action such as buying a new product or speaking to a regulated adviser

In case you were wondering, “regulated advisor” = “salesman”. Already the Royal Bank of Scotland boasts that its Moneysense programme is “the largest personal finance education programme in the UK, and has a presence in 65% of secondary schools”. Financial education, when in the hands of the financial services industry, is as much about selling new products as it is about education

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Rip-off News round-up. Our pick of the last week's media (Thu 7th Jun)

Lycamobile is Tories' top corporate donor - but pays no corporation tax. 
Lycamobile has given Conservatives more than £300,000 in last nine months, but has paid no coporation tax for three years. GUARDIAN

How to turn around the economy? History shows austerity has never worked.
It's not just about the current economic environment. History shows that slashing budgets always leads to recession.  GUARDIAN

Savings accounts with the same name but different rates - a new trick to baffle savers.
Banks and building societies are offering different rates on the same deal — depending on the day customers opened the account. Providers routinely launch waves of accounts to attract (surely "confuse" - Ed) new customers, putting out 188 easy-access accounts last year. DAILY MAIL

Personnel bosses call to reject 'objectionable and unnecessary' Beecroft plan for easy sackings
The Chartered Institute of Personnel and Development (CIPD) said the proposals outlined in the far-reaching report by venture capitalist Adrian Beecroft would fail to achieve the intended result of kick-starting recruitment.  DAILY MAIL

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How much are we Britons, and also our fellow Europeans, in hock to bail out the banks?

As governments around Europe impose grim austerity on some of their citizens ("some" because the claim that "we are all in this together" is a fib), we show how generous these governments have been to the banks.


These graphs, using data provided by governments to the European Union, show the Assets and Liabilities of the UK government and also for the European Union as a whole. Note that these figures relate purely to government and the bank bailouts - and don't include assets/liabilities from other government activities or non-governmental support. The Eurostat briefing note states the data "is only intended to show government interventions directly related to the support for financial institutions. Support operations by central banks, government support measures for non-financial institutions and general economic support measures are not included."


The 'Assets' are mainly the shares in banks bought by the governments (e.g. Lloyds, RBS etc), and the money owed to the governments by the banks. 


The 'Liabilities' are mainly money borrowed by the governments to hand to the banks, plus the potential cost to the governments if the 'too big to fail' banks need to be prevented from failing.


Assets: Shares bought by government in financial institutions (Lloyds; RBS; etc), and loans made by government to financial institutions:

·        Loans granted by government or acquired from financial institutions (assets);

·        Debt instruments issued by financial institutions and bought by government as provision of liquidity (assets);

·        Equity subscribed by government in financial institutions as a counterpart for a provision of liquidity to the banks (assets).

Liabilities: Money borrowed by government to buy bank shares and make loans to prop up the banks:

·        Loans incurred (directly or indirectly) by government in order to finance various interventions (liabilities).

·        Debt securities issued by government to finance the interventions (liabilities).

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How tax dodgers see their dodging as a fight against evil!

“Taxation means that Smith is forcing Jones to hand money to Bloggs under threat of imprisonment. That is treating Jones as Smith’s slave.”
Taxpayers' Alliance report "The Single Income Tax"

The key factor that drives companies and conmen who rip-off people is greed. The reason banks rarely steal candy from babies is not that they care for babies, it is that they don't care for candy. 

But have you ever wondered why some people with pots of money strive so hard to dodge tax? And why a huge multibillion pound industry of lawyers, accountants, bankers, politicians and lobbyists - many of them decent people - has grown to support them? Leaving a £35 billion (estimated by some to be as much as £120 billion) hole in public finances that has to be filled by higher tax and cuts in services for everyone else? Is it simply greed?

An insight into their reasons was published in May 2012 when the Taxpayers’ Alliance, backed by the Institute of Directors (who should know better), released a 420 page report, “The Single Income Tax”. 

In this report, apart from the stuff about why taxes on the wealthy should be radically cut, we also see why tax-cutters are so fervent. So fervent they are prepared to tell fibs and consign others to economic, mental and physical ruin by withholding their taxes thereby impoverishing public services. It is because they believe they are fighting wickedness! And by characterising what they do as a fight against wickedness it gives them licence to fight without scruple.

Throughout history powerful people have argued that the things they do are a battle against wickedness. Like the crusaders centuries ago invading the Holy Land, claiming to be doing god’s work, with the coincidental benefit of bringing them great wealth. The head of the Cistercian monks in the thirteenth century, during a war between types of Christians, when asked how to distinguish between the good and the bad on capturing the citizens of a city in France advised “Kill them all. God will know his own”.

The Taxpayers’ Alliance report seems to take the Cistercian’s view on taxes. The report comments “Tax maybe a necessary evil – but it remains an evil”, asserting in these extracts from the report that

·        Tax is coercive. “taxation relies on the use of force…. Coercion is a serious business: it imposes an awesome responsibility on the authorities to ensure that the money that is raised through it is spent wisely and effectively. Bureaucracy and waste are not just a loss to the economy – they are a moral outrage.”

·        Tax eclipses personal morality. “Not only is taxation a form of confiscation under threat of force. It is confiscation by people who believe their values and priorities are superior to those whom they force to pay up.”

·        Taxation raises the state over individuals. “the argument that some people must be forced to pay money for the benefit of others is extremely fraught. The state has no prior moral right to people’s property. If it did, there would be no logical stopping point; no level of state expropriation which any of us had any right to resist.”

·        Taxation undermines personal responsibility. “taxation also – malignly – relieves them of personal responsibility. They may wish, for example, to take care of elderly relatives, or to provide educative activities for their children, or to give themselves training that might enhance their employment prospects. By eating into their income, savings and capital, taxation reduces their ability to do these things.”

And it goes on about the effects of tax:

·        Higher taxes are morally corrosive.

·        Ethical corrosion in government.

·        War between social groups.

·        Creates perverse incentives.

·        Taxes reduce human prosperity.

Perversity, corrosion, immorality, slavery and social war – what’s there to like? Thereby the report asserts that dodging tax is not for the dodgy. Tax dodgers are actually dodging wickedness. And the only way to stop the dodging is to abolish the taxes - hence the report.

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Calling all public servants: if you want more cash in your pocket you have to put your arguments effectively. To see how this is done: nobody does this better than our Honourable Members of Parliament.

[UPDATED FEB 2016: MPs got another pay rise, of 1.3%, in April 2016, taking their salary to £74,962. This was on top of a 10% rise decided in August 2015 and backdated to the general election. The increase is an annual adjustment decided by the Independent Parliamentary Standards Authority (Ipsa), which takes into account average public sector pay rises. However, it is slightly higher than the 1% public sector pay cap introduced by Chancellor George Osborne.]



Doctors, nurses, teachers, and all other public servants - if you want some tips on how to plead for more money you have no better example to follow than our members of parliament. You all may be having your pay and pensions sliced. But remember our poor Parliamentarians too had a chunk taken out of their incomes - when they were stopped from making dodgy and fraudulent expense claims that netted some of them tens of thousands of pounds.

Frustrated at the Independent Parliamentary Standards Authority (IPSA) having the cheek to check on their reimbursements, and wanting to get a boost to their incomes from more carelessly doled out expenses, our Members of Parliament produced the following survey of themselves and statistics from their navel-gazing report published in 2011, which aim to show:

a) They reckon they work much harder than MPs from previous years, citing the number of pages of legislation, the number of meetings, number of reports, and the number of questions asked. They skate over the probable reason of the increase - computers and word processors spewing out padded verbiage that 30 years ago had to be laboriously produced by hand.
b) IPSA, the people who control their expenses really don't understand what they do, and why they really do need moats and duck houses.
c) We Ripped-off Britons really don't appreciate how lucky we are to have them, and they are cheap at twice the price, and they are really high calibre people, and we should be grateful, and... (I think you get the message)

In short, while the rest of the country's public servants are required to accept cuts to pay and pensions for the sake of the nation, the MPs want IPSA to get out of the way and hand the public purse back to the Honourable Members.

Questions in the survey include:

4. Do you agree with the following statement? IPSA's expenses system is adversely affecting MPs' family lives.	Response %	Response count
Strongly agree	41.0	84
Agree	36.6	75
Neither agree nor disagree	16.1	33
Disagree	4.4	9
Strongly disagree	2.0	4
answered question		205

5. Do you agree with the following statement? IPSA understands what I do in my role as an MP.	Response %	Response count
Strongly agree	1.0	2
Agree	3.4	7
Neither agree nor disagree	8.7	18
Disagree	34.0	70
Strongly disagree	52.9	109
answered question		206

Annex 2

Statistical information on the workload of MPs

Number of electors/people per MP 1922-2010

Source: Railings and Thrasher, British Electoral Facts: 1832-2006 (2007), pp 88-92.
House of Commons Library data.
Office for National Statistics population data.
B R Mitchell, British Historical Statistics (1988), pp 13-14.

Pages of legislation (Public and General Acts and Statutory Instruments)

Source: Parliamentary Trends: Statistics about Parliament, House of Commons Library Research Paper 09/69, 12 August 2009, Table 2.

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