We’d prefer that neither answer was true

The TUC appears to us to be arguing that as the banks are paying out big bonuses then, and therefore, the banks should be paying more tax. Well, it’s a view, certainly. The bit that is being missed is that by paying out big bonuses the banking system is paying more in tax. We think this is relevant information:

Burnham urged to increase tax on banks as Barclays’ profits soar

TUC says lender ‘can easily afford to pay more tax’ as it increases half-year bonus pool by nearly 30%

In more detail:

The TUC general secretary, Paul Nowak, said: “Big banks like Barclays are raking it in while working people and local businesses are struggling. High interest rates have been a boon for banks but have meant mortgage misery and higher bills for the rest of us.

“This is not a ‘hard choice’. Barclays’ bonanza profits show that banks can easily afford to pay more tax. This is a chance for the new prime minister and chancellor to show whose side they’re on. It’s time to increase the bank surcharge and tax banks to bring down energy bills.”

Worth, perhaps, pointing out that bank profits were deliberately and specifically depressed by low interest rates. A bank lives on the interest rate margin - the difference between what it must pay depositors to attract them and what it can gain by lending*. As no one will accept a negative interest rate on their deposits low rates overall squeezed that margin. As rates rise again bank profits are returning to normal, not rising as some evidence of capitalist financery.

But these bonuses. They will pay tax at some 60% or so**. Which is higher than even the punitive rate on bank profits currently. Thus the bank paying bonuses, rather than retaining the profit and paying corporation tax plus bank tax, leads to greater tax revenue.

Now, we would hope that the TUC knows this but perhaps they don’t. It’s also possible that they do but think we all don’t and therefore they can make this appeal. We would - of course - prefer that neither of those answers were true.

But whichever - it’s not exactly evidence of the high information content of modern politics now, is it?

Tim Worstall

*No, please do not wibble about but banks just create money by lending. MMT has some merits but the conclusion that banks do not require deposits is not one of them.

** Income tax will be at 45% - we expect bankers to be highly paid anyway, yes? - plus employers’ national insurance at 15%, employees’ at 2% and no, this doesn’t add up to 62% because you charge the NI first, then the income tax is on the sum left over after employers’ NI and so the true rate is left as an exercise for the reader.