[Metrobeans]

B457 - Big Banking Bill 2012, TSR Socialist

Banking Act 2012

An Act to introduce three fair levies on British financial institutions, while also protecting consumers from the harmful volatility of casino banking practices.


BE IT ENACTED by The Queen's most Excellent Majesty, by and with the advice and consent of the Commons in this present Parliament assembled, in accordance with the provisions of the Parliament Acts 1911 and 1949, and by the authority of the same, as follows:-


Part I: Financial Services
1 Financial Services Authority
(1) The FSA shall remain as a single quasi-judicial body.
(2) Under the provisions in this Act, the responsibilities of the Financial Services Authority are expanded to cover the requirements of 5(2) and 2(1).


2 Separation of Commercial and Investment Banking
(1) No UK financial institution shall provide retail banking services simultaneously alongside investment banking services.

(a) The FSA shall ensure that the two types of service are never present concurrently in any single financial institution, and shall enforce and maintain a division of each bank that neglects this rule.

(2) This rule shall come into effect two years following the passage of this Act into law.
(3) For the purpose of this Act, the following terms are defined as such:-

(i)"retail banking" is the execution of banking transactions directly with individual consumers. Such services are: mortgages, savings and transactional accounts, personal loans, debit and credit cards.
(ii)"investment banking" is the execution of banking transactions that constitute activity in the capital market.

Part II: Financial Sector Taxation
3 Financial Activities Tax
(1) A tax on the sum of a financial institution's total profit and remunerations.
(2) The rate of FAT shall be 2 per cent.
(3) This tax shall expire in 2016.
(4) Each financial institution operating in the UK shall be subject.


4 Financial Transactions Tax
(1) A tax on each financial transaction undertaken in the United Kingdom.
(2) The rate of FTT per transaction shall be 0.01 per cent.
(3) The FTT will be applied to the purchase and sale of: stocks, bonds, commodities, unit trusts, mutual funds, and derivatives, in addition to the trading of currency.
(4) Each financial institution operating in the UK shall be subject.


5 Financial Stability Contribution
(1) Each financial institution in the United Kingdom shall pay into the Financial Stability Fund at a variable rate according to their "contribution to systemic risk in the financial system".
(2) The risk of each financial institution's business operations shall be assessed by the Financial Services Authority, who shall then set a rate for each.

(a) The contribution to systemic risk is calculated by the FSA according to "the likelihood and amount of medium-term net negative impact to the larger economy of an institution's failure to be able to conduct its ongoing business. The impact is measured also by the economic multiplier of all other commercial activities dependent specifically upon that institution."

(3) The FSC shall raise no more than £10bn each year, and shall expire in 2023.
(4) Each financial institution operating in the UK shall be subject.


Part III: Appropriation of Revenue
6 Financial Stability Fund
(1) All revenue raised from 5(3) shall be held in a single Treasury fund titled the "Financial Stability Fund" (FSF).
(2) All capital in the FSF shall, at the Treasury's discretion, be used to reduce government debt through the purchase of bonds.

Part IV: Miscellaneous
7 Short Title
(1) This Act may be cited as the Banking Act 2012.


8 Commencement
(1) This Act will enter law on the 1st January 2013.

Notes

What's an FTT?

Spoiler:

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A financial transaction tax is very similar, in principle, to VAT, the major difference being it would raise a lot more and be progressive - it wouldn't affect the less-well-off anywhere near as much.

It works as such: when a business or individual makes a transaction with another business or individual, 0.01% of the transaction's monetary value is taken in tax. VAT does not apply to the financial sector, and an FTT would basically make up for that in a way that wouldn't add another layer of complexity to the collection of VAT.

So, Ms X sells an equity derivative worth £10 to Ms Y. With a financial transaction tax an additional 0.01% would be charged: 1p in total. Because there are very, very, very many trades like this in the financial markets, the tax revenue would pile up (see the Costings for an accurate Austrian estimate).

The great thing about the FTT is that it serves a purpose apart from raising desperately needed money. Say £1000 was being traded on the markets - it's highly likely that this would take the form of many transactions, possibly 1000. An FTT discourages these small transactions (because the smaller the trade the more likely it is to be made again and again back and forth), which is good as often they are short-term speculations - the more the system uses them the more unstable it is. Medium-to-long-term investment transactions will be encouraged as a result of an FTT being put in place. Here is a related film (though it doesn't refer to the specific proposal in this Bill):

What're FAT & FSC?

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The FAT and FSC are levies on the profits of the banking sector - the IPPR's Financial Sector Taxes report revealed (p.4) that the largest British banks pay a relatively low amount of tax compared to the rest of business. The taxes in this Bill would make up for the loopholes and are a direct way of ensuring banks pay their fair share, basically the FAT is an anti-tax avoidance measure. The FSC would work in a similar way to the FAT, except banks that are seen by the FSA as being particularly risky ("too big to fail") would pay more accordingly. All money from the FSC (it's capped at £10bn) would go to buying back government debt, debt that was incurred through bailing out the banks a few years ago.

History time: interestingly enough, the FSC was first proposed in the MHoC's 2010 Budget Report by the Liberal Democrat-Centre Party Coalition:

(Original post by (Former) Chancellor of the Exchequer, Rt. Hon. Drogue MP)
Lastly, we will be proposing a small levy on the systemic risk banks pose to the UK economy. This will not be large and will be on all banks operating in the UK, so as to not prejudice UK-based firms, but will provide an additional incentive to reduce the risk they impose on society and will help to pre-fund any bailout of systemically important firms that is needed. Effectively it's mandating that systemic firms buy insurance against the impact their failure would pose to society, the same way drivers must buy third party car insurance in case they cause damage to someone else.

Why separate casino from commercial banking?

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After the 1929 Wall Street Crash, the US Government split all American financial institutions into commercial and investment ventures. 10 years prior to the US banking crisis of 2008, this measure was repealed. Coincidence or not, a raft of economists have declared their support for a revival of Glass-Steagall (as the measure was called). But why?

The commission, chaired by Sir John Vickers, suggests splitting the country’s banks into two parts, dividing their retail- and commercial-banking bits from the racier investment and wholesale sorts. The retail bank will hold thick buffers of equity and loss-bearing debt that far exceed those agreed to internationally. The result will look more like the 1930s Glass-Steagall act in America than many British bankers had hoped.

Costings

Spoiler:

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Changes:
1). FSC; +£10bn p.a.
2). FAT; +1.8bn p.a.
3). FTT; +£50.0bn p.a.
4). FSF; -£10bn p.a.
+£51.8bn

As you can see, this Bill would raise a lot of revenue if enacted, but how much?

An Austrian thinktank, the Ifo, produced a paper in 2008 titled "A General Financial Transaction Tax; Motives, Revenues, Feasibility and Effects" that made realistic estimates of the revenue that could be collected from various financial transaction taxes (applied to the trading of stocks, bonds, currencies, derivatives, etc.). The FTT included in this Bill was composed with the Ifo report in mind. Here's a breakdown of potential revenue (in billions of USD) from different rates:

Hypothetical transaction tax receipts in Germany and the UK
in $bn:

Spoiler:

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The above figures are based on the financial system in 2005. Though some stuff has happened since then, profits are already returning to pre-crash levels. UK GDP is $2,250,000,000,000, tax receipts (assuming a low decrease in transaction volume) would come to roughly 3.3% of this. (A medium/high impact on trading volume is reserved for much higher rates (0.05%/0.1%) - the rate in this Bill is one of the lowest floated in the report.) So at 0.01%, the FTT would be estimated to raise £50.0bn.

This is the added tax receipts from the FTT in the context of Central Government finance as a whole:

Revenue/Expenditure

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Sources of Central Government Revenue, 2012-13
Ground Rent Tax: £301.0bn
FTT: £50.0bn
Income Tax: £79.0bn
Corporation Tax: £48bn
Value Added Tax: £20.9bn
Other: £100.4bn*
Projected 2012-13 Total Revenue: c.£544bn
Projections with the FTT: £599bn

*

Spoiler:

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Other Revenue

Petroleum revenue tax £1.3bn
Capital gains tax £3bn
Inheritance tax £2.1bn
Stamp duties £11.1bn
Fuel duties £36.2bn
Carbon tax: £11.1bn
Tobacco duties £8.5bn
Alcohol duties £10bn
Betting and gaming duties £1.5bn
Air passenger duty £3.1bn
Narcotics duties £3.2bn
Insurance premium tax £2.8bn
Landfill tax £1.5bn
Aggregates levy £0.3bn
Customs duties and levies £2.9bn
FAT £1.8bn
"Other": £100.4bn

All figures here are based on either the estimations of Welfare Act 2012 or the Carbon Tax Act 2012, or the projections of the IFS for the 2012-13 fiscal year.

Projected 2012-13 Total Expenditure: c.£610bn

The figure here is based on the 2012 Budget's estimates (minus £75bn: cut local government grants), because there aren't many thoroughly costed acts on the statute book that add to spending without being (roughly) neutral.

Projected 2012-13 Fiscal Deficit: c.£66bn
Projected 2012-13 Fiscal Surplus: (with Banking Act): c.£11bn

[internetguru]

I supported the separation of investment and commercial banking but the rest is a no from me.

[toronto353]

Surprisingly there's little here that I disagree on. My main concern is FTT because I think it needs to be applied worldwide. If you look at Sweden (it may have been) when they introduced FTT, their financial services sector stopped trading in Sweden and so I feel that the £50 billion figure doesn't take into account companies moving offshore because of this. Good costings though. Were the Socialists to put FTT in a separate Bill and the rest of this stay here, I would vote for this.

[Mr Dangermouse]

Hehe, FAT

[MacDaddi]

NonononononononnononoNO.

Why would companies want to stay here if a tax like this was interested. It would highly hurt the City and the economy as a whole (French companies considering relocating after Hollande's and Sarkozy's proposals) - making the £50 billion raised in taxes seem nothing.

[JPKC]

(Original post by toronto353)
Surprisingly there's little here that I disagree on. My main concern is FTT because I think it needs to be applied worldwide. If you look at Sweden (it may have been) when they introduced FTT, their financial services sector stopped trading in Sweden and so I feel that the £50 billion figure doesn't take into account companies moving offshore because of this. Good costings though. Were the Socialists to put FTT in a separate Bill and the rest of this stay here, I would vote for this.

I'm glad. There's certainly an appetite among most governments to see one in each of their territories, the only real obstacle to this is the bogeyman of tax competition. The FTT in this bill is midget even by comparison to other versions of the tax. Its rate is 0.01%. This would not outweigh the benefits financial institutions reap from trading in the UK, our currently low taxes are certainly not the only asset the City has. We are uniquely well-placed to benefit from the opening up of markets world-wide, and an FTT would not change this. The revenue estimation takes into account the likely drop there would be in the volume of transactions (and, remember, trading on the UK capital market can only be undertaken in the UK, so in order for a company to avoid the tax they'd have to cease business in Britain completely which would be far more damaging than simply paying up).

[Sdiff]

It doesn't help your cause when you use colloquial, loaded phrases like "Casino banking"

[obi_adorno_kenobi]

(Original post by MacCuishy)
NonononononononnononoNO.

Why would companies want to stay here if a tax like this was interested. It would highly hurt the City and the economy as a whole (French companies considering relocating after Hollande's and Sarkozy's proposals) - making the £50 billion raised in taxes seem nothing.

Where would the go?

[toronto353]

(Original post by JPKC)
I'm glad. There's certainly an appetite among most governments to see one in each of their territories, the only real obstacle to this is the bogeyman of tax competition. The FTT in this bill is midget even by comparison to other versions of the tax. Its rate is 0.01%. This would not outweigh the benefits financial institutions reap from trading in the UK, our currently low taxes are certainly not the only asset the City has. We are uniquely well-placed to benefit from the opening up of markets world-wide, and an FTT would not change this. The revenue estimation takes into account the likely drop there would be in the volume of transactions (and, remember, trading on the UK capital market can only be undertaken in the UK, so in order for a company to avoid the tax they'd have to cease business in Britain completely which would be far more damaging than simply paying up).

I'd be willing to raise this in the MUN and see what response we get for a global tax. However, will the Socialist party be removing that section from this Bill? It could still be a separate Bill, but then it would certainly mean a definite aye from myself. I don't support unilaterally creating a FTT. The problem is relocation and I'm wondering if you're underestimating the strength of that.

[JPKC]

(Original post by MacCuishy)
NonononononononnononoNO.

Why would companies want to stay here if a tax like this was interested. It would highly hurt the City and the economy as a whole (French companies considering relocating after Hollande's and Sarkozy's proposals) - making the £50 billion raised in taxes seem nothing.

I'm glad the UK doesn't operate a system of government where the narrow interests of business dominate policy formulation. You completely forget that the City hurt us, and that measures like the ones in this Bill would hinder the repeat of such largescale devastation. This Bill balances the interests of the financial sector with those of both the British public and wider economy. Let's refrain from irrational speculation when deliberating on the merits of measures like these.

[Mechie]

Yes, I agree with this

[tehFrance]

**** no, we need more deregulation not more regulation.

We need to be Britzerland or Brichtenstein

[MacDaddi]

(Original post by JPKC)
I'm glad the UK doesn't operate a system of government where the narrow interests of business dominate policy formulation. You completely forget that the City hurt us, and that measures like the ones in this Bill would hinder the repeat of such largescale devastation. This Bill balances the interests of the financial sector with those of both the British public and wider economy. Let's refrain from irrational speculation when deliberating on the merits of measures like these.

Is it in the interests of the British population for there to be a strong economy, providing plenty of well-paid jobs?

[Birchington]

I support the separation of commercial and investment banking, the rest of this I strongly disagree with.

[internetguru]

(Original post by tehFrance)
**** no, we need more deregulation not more regulation.

We need to be Britzerland or Brichtenstein

Banking is the one industry which I would say needs more regulation. The economy is too fragile and exposed to banking mistakes so if we want to prevent more major recessions we have to do something. Whether that is add safeguards in and extra regulation, or have the Queen ensure banks are not bailed out in future but we cannot leave it as it is.

[JPKC]

(Original post by toronto353)
I'd be willing to raise this in the MUN and see what response we get for a global tax. However, will the Socialist party be removing that section from this Bill? It could still be a separate Bill, but then it would certainly mean a definite aye from myself. I don't support unilaterally creating a FTT. The problem is relocation and I'm wondering if you're underestimating the strength of that.

As the Bill's baby-daddy, I would be reluctant to split the measures up. I don't believe relocation is a tangible threat posed by the FTT for two reasons. Firstly, a company doing business in our capital market would pay the same minute charges regardless of where they were listed, so there'd be absolutely no incentive for them to leave Britain because of this. Secondly, the 0.01% rate would affect the potential profit in a transaction by a whisper (if at all), so doing financial business in London would still be as worthwhile as anywhere else, even ignoring all the other benefits brought by being in the oasis of Canary Wharf or the Square Mile. Britain, after America, is the best-placed economy to implement an FTT since the success of our financial sector is not dependent entirely on low-taxes.

[JPKC]

(Original post by Birchington)
I support the separation of commercial and investment banking, the rest of this I strongly disagree with.

Can't do much for you unless you let on why. Also, weren't you yourself a member of the Government that proposed increased financial sector taxation in 2010?

(Original post by Sdiff)
It doesn't help your cause when you use colloquial, loaded phrases like "Casino banking"

It's in the OED and bankers themselves often use it. It's loaded but that doesn't detract from the point being made.

[toronto353]

(Original post by JPKC)
As the Bill's baby-daddy, I would be reluctant to split the measures up. I don't believe relocation is a tangible threat posed by the FTT for two reasons. Firstly, a company doing business in our capital market would pay the same minute charges regardless of where they were listed, so there'd be absolutely no incentive for them to leave Britain because of this. Secondly, the 0.01% rate would affect the potential profit in a transaction by a whisper (if at all), so doing financial business in London would still be as worthwhile as anywhere else, even ignoring all the other benefits brought by being in the oasis of Canary Wharf or the Square Mile. Britain, after America, is the best-placed economy to implement an FTT since the success of our financial sector is not dependent entirely on low-taxes.

Unfortunately I can't vote for a Bill that has FTT. The ball's in your court really. You have a lot of support for the first section so it might be worth splitting this Bill down a bit because the first part you'll get through the House no problems. The rest is where we're all split.

[Ocassus]

This is ok except for the FTT. Trust me, I know bankers personally, and they move VERY easily. Like it or not, a stupid amount of our economy is dependent on the financial sector, and unless we build an efficient and cost effective manufacturing sector I don't see that changing very soon. It would be yes but for the FTT.

[Birchington]

Unfortunately, our economy is incredibly reliant on the financial sector. Any form of FTT will encourage banks to move elsewhere, potentially causing our economy damage. We must decentralise our economy and rebuild our manufacturing sector and ensure we have a sustainable, export led growth plan. Only then will I support FTT, but until this happens we must look beyond childish 'banker bashing' and realise thatalthough the financial sector may often act in a morally dubious manner, it heavily contributes to our economy.