That’s a bit thin isn’t it? The only point of substance I can see there is the following:

I don’t quite see what reducing corporation tax for companies that earn over £1.5 million in profit each year will do for them [very small, parent-run companies], or why the assets of the very rich are more sacrosanct than the VAT rates paid by the poorest.

Yet apparently this is class war. Gosh. We’re setting the bar a bit low for that, now aren’t we?

Which is a bit of a strawman really. Because saying that ‘Labour have resorted to the language of the class war in their attacks against the Tories’ is just not the same as saying that ‘every attack on the Tories made by Labour is class war’.

But then I would say that wouldn’t I? I, after all, am guilty of the most cardinal sin of all: a bespoke suit.

Now that you’ve found your inner class warrior, any chance of revealing what that means? It’s hard to tell from such platitudes.

So the best the Labour has got to haul the country out of the massive financial black hole in which the UK currently resides, is the politically self-serving tactic of attacking banks. Can someone explain to me how this will help those on the lowest income?

Tim J

I think this is the point of substance:

“If we’re all in this together, how come it’s only the poor and middle incomes who get told they have to pay the price – whether through worse public services, higher taxes or an attack on their ability to create wealth?”

No numbers in it to be sure – if that’s your definition of substance – but it underscores one of the most important points that needs to be made if we’re to have an honest analysis of the whole shambles: people who can least afford to are being forced to service the lifestyles of the well off, and the wide boys who populate the right on the political spectrum are more than happy to make that work no matter who they screw.

Let’s have an example – the Tories at Hammersmith and Fulham, for instance, can’t shut up about their zero council tax increases (think they’ve even been wanking on about tax reductions). What they don’t tell you is that the least well off are bankrolling this – because the council is now charging for meals on wheels and vital services like homecare for the disabled. People who need those services really need them. They don’t have much choice – I suppose they could choose to save their money and forfeit showering, shopping, and toileting in the toilet, etc, but it wouldn’t be much of a choice.

A group of people with disabilities was so incensed by this last that they took the council to court earlier this year. The judge was compelled to uphold the council’s decision to charge, but made the point that the council had ‘sacrificed free home care on the altar of a council tax reduction for which there was no legal requirement,’ and observed that the people of Hammersmith and Fulham might be surprised to hear that their council tax reductions were being paid for by people with disabilities.”

So – that’s one example of substance for you. This theory that the poor will take whatever it shoved up their arses so that the well off can continue in clover is rife. Hopi’s article might be thin on numbers, but the point about class war is well made and needs to be made again and again. I mean – the likes of Ham and Fulham really are shit.

What we need is for people to follow Tebbit’s advice to get on their bike when times are tough. The people in question here are the RBS bankers who are being threatened with unfairly low wages due to the cut in their bonus and are threatening to leave the country. This would be a good thing as it would make our country more efficient and leaner and all those lovely things that happen when the jobs market is squeezed.
Or is it one rule for one class and not another?

4 – so the attack is that it is the Tories who are being class warriors? Doing down the poor to protect the rich?

I can see that as being an effective strategy for the election – after all, when public spending is cut, it will necessarily disproportionately affect those who rely most on it: the poor. Attacks that are based on a truth always work better.

A lot will depend on what’s in today’s PBR. Because there is a limit – a fairly low limit – to what can be extracted from ‘the rich’. There aren’t very many rich, and it certainly isn’t possible to make a serious attempt at controlling the deficit solely by taxing them. If Darling doesn’t set out a credible policy for deficit reduction, then it is a good sign that Labour have given up on the possibility of winning the next election altogether, and are focusing instead on minimising their losses, and giving them most scope for attacking the Tories.

It would be pretty damn irresponsible, but that’s another story.

V. good question, sly and reggie. I often wonder why no-one’s warning the whiners at RBS about the hundreds of bright Indian graduates who’d do their jobs for a fraction of the money. Or why the Division-of-Labour fans aren’t rejoicing at the news of the whole banking industry leaving for China.

Weird, isn’t it?

5 & 7 – the whole point of the RBS ‘bankers will quit’ story is that human capital in the financial sector is extremely mobile. They are, in fact, proposing to get on their bikes and look for work. They won’t all go to China (although Shanghai and Hong Kong offices are getting bigger) but they will go to other non-taxpayer owned banks, or non-UK banks, or non-bank financial services, such as hedge funds.

If you genuinely think that this won’t happen, I suggest you look at what happened to New York as a financial centre following Sarbanes Oxley. Have a look particularly at what happened to primary and secondary listings.

Because there is a limit – a fairly low limit – to what can be extracted from ‘the rich’. There aren’t very many rich

There may not be very many of them, but they do have more money than all the rest of us put together.

@8 – [worstall] It makes us richer, so what’s the problem? [/worstall]

10 – Neil: “The operation was a success, but the patient died”

Tim J – I would genuinely like to know why bankers are immune from the normal Laws of Economics, in a way that (say) steel workers are not.

And if they are somehow exceptional, and therefore able to hold the rest of us to ransom, shouldn’t we do something about it – like replace them with cheaper Indian graduates, ASAP?

Tim – surely there’s an even bigger limit to the amount that can extracted from the poor? What do you say to careworkers who’ve had their salaries halved when outsourced – tough shit? I’ll tell you what management said to Barnet careworkers to whom exactly that happened – management told them they could make up their lost money by working extra shifts. You need to get out and talk to a few of the people who are paying for the likes of good old Freddie Shreddie’s lifestyle, my good man.

neil – brilliant. lol

I am sure that our bankers are not so talented that we could not find lots of other people who could do the same job just as well for a lot less money. Let’s go for it.

hehe

12 – they aren’t. Quite the reverse. When the demand for steel is high, and Britain has a comparative advantage in steel manufacture, then steel workers will flock to work here, and salaries for them will rise. If global demand for steel remains high, but Britain loses that advantage, by introducing policies that penalise steel workers, then steel workers will have an incentive to work overseas.

In fact, replace ‘steel workers’ with ‘mining engineers’ and have a quick look at postwar Britain’s migration statistics and you’ll see that exactly that happened. Very high taxation (and austerity, miserable weather etc) triggered record levels of emigration – mining engineers could command substantially higher wages in places like Northern or Southern Rhodesia, and lots of them went, helping to deskill the British mining sector.

It’s the same with the financial sector. At the moment there is high global demand for financial sector workers. Britain has a comparative advantage in the financial sector, but it’s getting less clearcut. If that reaches a tipping point then you will see the decline of London as a financial centre, and the departure of a proportion of the bankers. You can argue that this is a good thing if you like – because as every rich banker leaves, national incomes become more equal. But I don’t think you can credibly argue that it’s not going to happen – it’s happened all the time.

13 – I wasn’t making a moral point, only a financial one. The Government can raise much much more money by, say, sticking 0.5% on NI than it could on sticking it to the bankers. There just aren’t that many of them.

But Tim… Surely the mining engineers departing for places with larger mineral resources than the UK made us all richer. So it’s good that they left… Isn’t that how globalisation works?

17 – Good for them certainly. Good for the companies that employed them as well, and the countries that received them. Not so great for British mining industry, nor UK Govt. tax receipts in the short term.

I’m not entirely certain of what your point is though. At first it seemed to be ‘bankers should get on their bikes’. Then, after I argued that that was precisely what they were doing it became ‘why are they different to steel workers then?’ And now, after I’ve argued that they’re not, it seems to be – what? Something about globalisation? Arguing with you is rather like punching fog.

Arguing with you is rather like punching fog.

Don’t be disingenuous Tim, you know perfectly well what I’m getting at.

19 – I honestly don’t. Is it that bankers are going to leave and that’s a good thing? Or that bankers won’t really leave, and that’s a good thing? Or that if bankers say they’ll leave ‘we’ should get in bankers from overseas to do it?

If it’s the last one incidentally, a high proportion of bankers in the UK are from overseas already, and they’re the ones most likely to up sticks.

4 – The situation you describe in Hammersmith and Fulham sounds very similar to what the Tories at Nottinghamshire County Council are doing.

Tim:

I’m prepared to believe that if we tax high earners a certain proportion will leave for jobs elsewhere. If those jobs are available, of course. Given there are cutbacks worldwide in financial services, there probably aren’t many available right now.

But what I am not prepared to believe is that this means the lights will go out all over the City because they won’t be able to find anyone to recruit. It’s still just about the highest paid career you could possibly find, and it’s not as if we have a shortage of university graduates…

But what I am not prepared to believe is that this means the lights will go out all over the City because they won’t be able to find anyone to recruit. It’s still just about the highest paid career you could possibly find, and it’s not as if we have a shortage of university graduates…

Absolutely. There will still be a market for bankers in London, but because it will (on this scenario) have lost some of its competitive advantage, there will be fewer jobs available. As I said upthread, this is what happened to New York after SarbOx. It’s not just the bankers that are mobile. It’s the banks too.

Neil. Many technically able peopleleft the Uk post 1945. Tony Benn when he was a minister visited many American universities to persuade British scientists to return to the UK. The brain drain included craftsmen, technicians, scientists and engineers.

This may make me a lunatic, but to my mind basing a significant chunk of our economy on tertiary production which is apt to up sticks at the least provocation might not be the wisest strategic choice. I know many are allergic to the idea that we should make any strategic choices at all on economic matters, but I’m not really convinced….

@TimJ

“There will still be a market for bankers in London, but because it will (on this scenario) have lost some of its competitive advantage, there will be fewer jobs available”

Maybe this is for the best, as the “competitive advantage” appears to be built on huge levels of public subsidy (the free insurance that the banking industry as currently structured required from the taxpayer to pay for when all goes tits up every 20 years).

In any other subsidised industry, you would be demanding that the subsidy is ended and to let the market do its thing (which is – as you know – the point Neil is making). Aren’t we distorting the signals the market is giving us if the only attraction of the UK is the fact the UK Government subsidise the financial services industry?

Bankers are special though aren’t they – they’re not manual working-class labourers but a wealthy, largely foreign, private-school educated, Oxbridge elite.

Maybe this is for the best, as the “competitive advantage” appears to be built on huge levels of public subsidy (the free insurance that the banking industry as currently structured required from the taxpayer to pay for when all goes tits up every 20 years).

In any other subsidised industry, you would be demanding that the subsidy is ended and to let the market do its thing (which is – as you know – the point Neil is making). Aren’t we distorting the signals the market is giving us if the only attraction of the UK is the fact the UK Government subsidise the financial services industry?

So that’s what Neil’s point was! Subsidies! I honestly hadn’t picked that up. Well, we could downplay one of the few sectors we have a strong comparative advantage in, but it’s probbly worth remembering (given our nice fat structural deficit of £90bn) that the financial sector pays 30% of corporation tax receipts. Kicking a hole in that is going to leave a fairly hefty gap.

And as for the UK Govt’s subsidies for the financial sector – are you referring to the specific bailouts given to RBS, Lloyds and Northern Rock? Because they have all had their market caps shot to hell through their own mismanagement. And none of them are serious players in the international banking scene as a result (although Lloyds still has capacity to recover). The Govt by taking them into effective state ownership has prevented losses accruing to depositors, but shareholders have seen their holdings decline by 90 odd per cent.

I’m aware that ‘stick it to the bankers’ makes for an effective populist slogan. I’ve also come to the conclusion that Labour aren’t really trying to win any more, and can thus say what they like safe in the knowledge that they won’t have to implement it. But the fact remains that substantially increasing taxes and regulation on a sector that is highly mobile in both capital and labour has a predictable outcome. As noted above, if it’s only labour that’s mobile you get a ‘brain drain’; when it’s jobs and labour? Well, just ask about primary and secondary listings on the NYSE.

@TimJ

“Well, we could downplay one of the few sectors we have a strong comparative advantage in”

But ask yourself why we have a comparative advantage? If it is tipped over by ending the tax and regulation breaks and the insurance subsidy we provide to the industry, surely that is not a comparative advantage?

“And as for the UK Govt’s subsidies for the financial sector – are you referring to the specific bailouts given to RBS, Lloyds and Northern Rock?”

No. I’m also referring to the fact that the UK government in being forced to bail out the banks you name have provided a return on the bad investments that other banks have made (which were dependent on RBS, Lloyds and HBOS meeting their obligations). The large bonuses that we are seeing now are coming directly from the taxpayer (both US and UK).

“I’m aware that ’stick it to the bankers’ makes for an effective populist slogan”

True. It also makes for a sensible economic policy – provided it is more than “stick it” and designed to make the system operate more sensibly.

There is, for example, a clear rationale for intervening on behalf of the shareholders of the banks to control bonuses for example – it is clear corporate governance is failing in enabling banks to pay wages that are based on true performance (rather than the myths of it, and the fallacy that in a time of boom all bankers are by definition performing well) and encourage a rational treatment of risk in the interests of shareholders.

“substantially increasing taxes and regulation on a sector that is highly mobile in both capital and labour has a predictable outcome”

I suspect you over-estimate how mobile labour will be – bankers have children and have roots in London, and prefer living here than in a remote desert town in the middle east. Some will leave. Most will stay.

“As noted above, if it’s only labour that’s mobile you get a ‘brain drain’”

I would hope that there is international regulation – it is possible with a strong EU and the political will to do this from the US. Where on earth will the bankers flee to if the world solves its collective action problem?

I would also hope that there is a “brain drain” from unproductive speculation for banks to more productive enterprises.

@ Tim

The Govt by taking them into effective state ownership has prevented losses accruing to depositors

But they could have secured depositors funds without bank rolling the banks.

You see you can’t have it both ways- either the market works or it doesn’t.

If it does work, RBS and HBOS should have been allowed to fail.

If it doesn’t work the government were right to have intervened. But once you accept that view, you can’t really complain if it chooses to further intervene throughout the economy.

But ask yourself why we have a comparative advantage? If it is tipped over by ending the tax and regulation breaks and the insurance subsidy we provide to the industry, surely that is not a comparative advantage?

Partly historical reasons (history as a trading centre, key role in development of international finance, seat of Bank of England plus world’s premier economy for a century etc etc), partly concentration reasons (the City is also one of the world’s leading legal centres, shipping centres, accountancy and other services etc), partly thanks to a favourable regulatory climate since Big Bang (and how is this a ‘break’? Is not regulating an industry to death a ‘break’ now?) and partly thanks to the tax system.

I’m also referring to the fact that the UK government in being forced to bail out the banks you name have provided a return on the bad investments that other banks have made (which were dependent on RBS, Lloyds and HBOS meeting their obligations). The large bonuses that we are seeing now are coming directly from the taxpayer (both US and UK).

And the rest of the developed world – they all provided this guarantee. Which, given that we’re talking about comparative advantage simply means that the countries which had enjoyed the tax receipts from larger more profitable financial sectors were hit with a larger ‘insurance’ charge. And these bonuses are only coming ‘directly’ from the taxpayer in the case of the taxpayer-owned banks.

I suspect you over-estimate how mobile labour will be – bankers have children and have roots in London, and prefer living here than in a remote desert town in the middle east. Some will leave. Most will stay.

I don’t have figures to hand, but the banks I know have remarkably multi-national workforces. Britons may be a majority, but I wouldn’t be surprised if it wasn’t an overwhelming one. These chaps have moved before, chasing a better deal. They’ll do it again. cf New York.

I would hope that there is international regulation – it is possible with a strong EU and the political will to do this from the US. Where on earth will the bankers flee to if the world solves its collective action problem?

Somewhere over the rainbow? You’re just not going to get concerted global action regulating the amount bankers are paid. Ever.

If it doesn’t work the government were right to have intervened. But once you accept that view, you can’t really complain if it chooses to further intervene throughout the economy.

Entirely agree. It shouldn’t be too much to ask, though, that the interventions are helpful. Given that we’re all shareholders now, I’d have thought it made sense to follow policies that, you know, maximise the share price? Everyone’s a winner…

There are thousands of people in this country who work their arses off everyday who are about to be screwed while some of our highest earners continue to live in luxury and you’re arguing about financial competitiveness. Ooohhh they might move abroad if they can’t afford to buy a flat in Kensington. Good riddance!!!

… And before you respond what I’m getting from you is that you care more about money than people, that you care more about luxury than people who have no expendable income, that you care more about the system of barter that humans invented than justice. Essentially I find you blinkered, unimaginative and I think the root of your argument is pants so don’t come back to me like you have to everyone above because to me the very basis of everything you’ve written is horsecrap Tim.

I just care more about outcomes than intentions…

@TimJ

“I just care more about outcomes than intentions”

With the outcome being that the financial sector continues with its heavily subsidised existence (to reduce the subsidy will lead to armegaddon as our financial industry leaves), with bonuses unrelated to performance (impossible to change this) and not in shareholders interests (no role for government in developing institutions which will do this), and the poor paying for the stupidity of bankers (it’s capitalism stupid)

Great outcome.

…with bonuses unrelated to performance (impossible to change this) and not in shareholders interests (no role for government in developing institutions which will do this), and the poor paying for the stupidity of bankers (it’s capitalism stupid)

Bonuses are often linked to individual performance (not always of course, Alan Rusbridger pulled in a 400k bonus this year despite disastrous Guardian figures), and usually linked to departmental performance (ie: individual sectors within a bank can be highly profitable even when the bank as a whole is not). It is, of course, extremely difficult to see how legislation could seek to micro-manage the pay structures of an entire sector. Shit, I mean they can’t even organise performance-related pay in a sector where they are the sole employer.

Incidentally, the Government’s position on this is complete bollocks (as was the position of the RBS board). In those institutions (Lloyds, RBS and NR) where the taxpayer really has taken over, the Government is the absolute majority shareholder. It holds more than 75% of shares. So it can call an EGM and pass a Special Resolution specifically on bonuses, or pay, or anything it damn well wants. It owns the bank. If it really thinks that cutting/limiting/abolishing bonuses are in the bank’s interest, then it has a moral obligation to do it. Otherwise it’s just posturing isn’t it?

And exactly what shareholder institutions are you thinking of? At the moment you require a majority of shareholders to pass (or propose) Ordinary Resolutions. Which include things like the make-up of the Board, and of the remuneration committee. I’ve seen things suggesting that much smaller minorities (20%, 15%) of shareholders ought to be able to block resolutions etc. That sounds to me a bit like the liberum veto which was sub-optimal for executive stability in Poland.

As for the poor paying for the stupidity of bankers, it’s a cheap demotic soundbite, and doesn’t mean anything.

@TimJ

“Bonuses are often linked to individual performance”

Bonuses are often linked to luck.

Very few do not receive a bonus in a rising market, even if they performed badly. In other organisations, bonuses are reserved for e.g. the top 20% of performers.

The current bonuses are being received solely because the Government have bailed out bad investments that bankers made.

“And exactly what shareholder institutions are you thinking of?”

Ones which prevent the current situation where no matter how ridiculous the renumeration scheme is it is never voted down by shareholders, due to the institutional investor execs having little interest in doing so (they’re all on the gravy train together).

“As for the poor paying for the stupidity of bankers, it’s a cheap demotic soundbite, and doesn’t mean anything”

Isn’t your argument that the Government should not tax or regulate banks more, tax bankers pay more, or charge for the insurance we give them, and that this should be paid for by increased taxes on the poor, public sector pay cuts and redundancies and cuts in public service

It’s no soundbite. It’s what is going to happen.

Ones which prevent the current situation where no matter how ridiculous the renumeration scheme is it is never voted down by shareholders, due to the institutional investor execs having little interest in doing so (they’re all on the gravy train together).

You mean shareholder institutions that ignore the votes cast by shareholders if you disagree with them?

Isn’t your argument that the Government should not tax or regulate banks more, tax bankers pay more, or charge for the insurance we give them, and that this should be paid for by increased taxes on the poor, public sector pay cuts and redundancies and cuts in public service.

Nope, my argument is that Governments should be aware that the financial sector is unusually mobile, both in capital and labour, and that this should be taken into consideration when trying to maximise tax returns from them. For example, a Tobin tax would be a disaster, as it would provide a massive disincentive on marginal transactions. The result would be lower overall tax receipts. Unless your sole aim is the marginalisation of the city (rather than, say, getting more tax from it) that’s a bad result.

Oh, and I know we’re not specifically talking about the PBR here, but Labour’s new bonus tax only applies to discretionary bonuses, which are obviously more likely to be performance related. Contractual bonuses, which have nothing to do with performance, are not taxable. Anyone see a quick round of contract renegotiations coming?

@TimJ

“You mean shareholder institutions that ignore the votes cast by shareholders if you disagree with them?”

No. It means ensuring that executives operate in the interests of owners rather than pursuing their own interest. Surely you cannot disagree with the goal?

Remuneration policies also need to be looked at. What tends to happen is the consultants come in to assess the pay structure, compare it to the average in the industry, and convince companies they need to pay above average to attract the best staff. The use of this methodology among the entire sector leads to an inevitable trend upwards in average pay (as the average moves up, and the pay required to be above average increases). Surely you cannot argue that productivity in the banking sector has increased so as to justify the massive increase in renumeration we have seen over the past 10 years?

“Nope, my argument is that Governments should be aware that the financial sector is unusually mobile, both in capital and labour, and that this should be taken into consideration when trying to maximise tax returns from them”

That’s your rationale.

But your argument is that because banking employees are so footloose (citing little evidence that suggests this is the case) we should not tax them, and because capital is so footloose it needs to be subsidised heavily to remain here (despite the comparative advantages that London has which you mention).

Essentially – the taxpayer needs to subsidise the banking sector, and the Government should make no regulatory attempt to reduce market failures in the industry because to do so will lead to armageddon and disaster for the UK.

40 – I’m just saying what the financial sector is saying. They might be lying, they might just be wrong, but it doesn’t seem to be to be a remarkable assertion that a sector that employs relatively highly-educated, relatively multi-national, relatively high-demand employees, and relies on a capital infrastructure that is overwhelmingly dependent on employees and not on plant is likely to be extremely mobile.

Read the FT today.

Bankers furious at bonus tax
http://www.ft.com/cms/s/0/c29c2988-e4fc-11de-9a25-00144feab49a.html

Who wants to be a city millionaire
http://www.ft.com/cms/s/0/b7edb462-e4f6-11de-817b-00144feab49a.html

UK banks’ bonus tax tops 100%
http://ftalphaville.ft.com/blog/2009/12/10/88126/bankers-bonus-tax-hits-100/

What banker wants to be in the UK?
http://www.ft.com/cms/s/0/6284fdba-e4c3-11de-96a2-00144feab49a.html

“I can’t tell you how many people have called me from London asking to move,” a senior Wall Street banker said. “The question all the banks have now is: who the hell wants to be in the UK? Some businesses will definitely leave.”

Like I say, they might all be wrong, but that seems like a bit of a punt to me.

But your argument is that because banking employees are so footloose (citing little evidence that suggests this is the case) we should not tax them

Your argument is that bankers are untaxed? Factoring in the new NI contribution, and the new top rate, and the loss of the allowance, high salaries are now (or soon to be) taxed at 51%. That doesn’t strike me as a non-existent tax rate. And the concern (as evidenced above) is that this will lead to reduced tax take, as companies and bankers leave, reducing income tax take and corporation tax take (of which the financial sector contributes a quarter to a third of the total). And that would fuck the poor.

I’m also extemely open to suggestions on how to increase shareholder activism. Make institutional investors’ holdings non-votign perhaps (but that would make them much less attractive, and thus depress prices)? Or have a shareholder representative on the board (but then, the entire board is appointed by shareholders anyway).

you are wrong to think in terms of ‘performance’ versus ‘luck’. If you are ‘lucky’ to have clients that are spending £2m per year with your employer, you can still take these lucky clients with you to a rival bank, unless you get paid a bonus. That’s why bonuses exist – it’s bargaining power. A windfall tax is fine, if genuinely one-off, becuase bankers are unlikely to relocate in any number because of it. Any legislation aiming at a more permanent fix has its work cut out, because it’s hard to fix this underlying bargaining problem and easy for bankers to subvert wage controls or relocate over time. People who blithely say ‘good riddance’ need to think a bit harder about the reality of losing such a large tax base right now, and what would be needed to replace it and how that’d play in context of fragile economy.

@TimJ

“I’m just saying what the financial sector is saying”

I know. Just because the financial sector say something it does not make it true.

Or maybe it does? We should just trust them and let them get on with ripping the country off as it is essential to everyone’s well-being that we do?

“Your argument is that bankers are untaxed?”

Many are taxed at a lower rate than most through dubious use of tax loopholes and “tax competition” between offshore tax havens.

@Luis

I agree it is very difficult to get a workable policy. The banking industry requires radical reform to prevent the circumstances that have led to the current crisis from continuing to allow workable policies to be agreed (and this will require international agreement).

But I think TimJ is arguing a) we should not bother doing anything; and b) we should not impose a windfall tax

We can impose a windfall tax if you like – but on what? The banks’ profits are still pretty flaky, and the Govt are imposing new capital adequacy rules on them too. On bankers’ salaries? I suspect that it would be illegal to have a tax rate that differed according to the type of job done, regardless of salary. On bonuses then? Well, that’s what they’re trying.

But the thing is that this tax law thing is complicated. I was a trainee tax lawyer (which sounds like a misery memoir of the ‘Daddy! No!’ variety) and one thing that tax law isn’t is straightforward. F’rinstance, the ‘discretionary bonuses’ that are to be taxed are, as far as I am aware, undefined in tax statute. They’ll also only apply until April 5, having only come into force yesterday. Delayed/early bonuses then? Or temporary salary increases?

If you want to stop tax loopholes, the best way to do it is to simplify the tax code. The UK’s has now overtaken India’s as the longest in the world, and more than a third of it has come in the last decade. It’s all too bloody complicated.

And, I repeat, the argument I’m making is not that these things shouldn’t happen, but that if they do, they are likely to have a detrimental effect on the City, which will have a negative impact on tax revenues.

“People who blithely say ‘good riddance’ need to think a bit harder about the reality of losing such a large tax base right now, and what would be needed to replace it and how that’d play in context of fragile economy.”

But the thing is – the relocation of the financial industry wouldn’t be 100% of the industry and it wouldn’t happen overnight. We will always have small firms in provincial towns investing money on behalf of local businessmen who they have had relationships with for years, and there will always be a need for local banks providing financial services. Re-location would thus be a process probably occuring over several years if not decades. Furthermore it would only be those parts of the industry that are more mobile and easy to re-locate – those are the parts we are going to lose anyway through globalisation as India and China produce maths and economics grads by the bucketload. Furthermore the parts that probably never paid tax in the first place.

We are thus more likely to see a gradual reduction in the money produced, which gives a sensible government time to orientate the economy away from the financial industry and to help develop comparative advantage in industries of the future (new green technologies, hi tech manufacturing and IT probably). With any luck such industries will be less mobile and staffed by less arrogant people. You are correct that this needs to be done in a clever manner, so I’d propose in the short run simply finding what level and types of tax maximise revenues (presumably this is possible), and adopting these levels ASAP regardless of how many city firms act like cry-babies. (I wonder how they all coped with 60% tax rates prior to 1987).

I would hazard a guess that much of the PR we’ve been subjected to recently is exactly that – PR – and the threat of many to leave is a bluff. I say we call it.

Much of the debate assumes that the levy was designed to raise money. I suspect it won’t, but was designed rather to avoid headlines in the run-up to the election about huge bonuses to staff of bailed out institutions. Tim of course is right that it’s probably easily avoidable, but then I don’t think that was ever the point.