In 2008, the UK Government stepped in to prevent a number of the biggest names in British banking collapsing. One trillion pounds worth of taxpayer support has gone into keeping the British banking industry afloat. Whilst it would have been catastrophic to let the banks go bust, something should now be done to prevent this crisis happening again.
Over the last few decades, British banks have merged with one another to create increasingly large institutions. Many of these indulge in high-risk investment banking, as well as the consumer-facing businesses of mortgages, savings and current accounts. Liberal Democrats believe that it is a bad idea to have both of these types of business in the same company. If the high-risk investments go wrong, as they did catastrophically in 2008, then the savings and mortgages of millions of people are put at risk.
For this reason, in the long term, Liberal Democrats want to see a complete separation of high-risk ‘casino’ investment banking from consumer banking. The government would then be able to closely regulate the consumer banks, and leave the investment banks to their own devices.
The splitting up of the banks in this way would be a long and complicated business, however. In the meantime, Lib Dems are proposing a short-term 10% levy on bank profits. It would be payable on all profits made within the tax year, without the deduction of previous years’ losses.
When conditions allow for the banks to be adequately split up this levy would be scrapped. This creates a direct financial incentive for British banks to work with the Government in finding a viable mechanism for splitting their functions.
Vince Cable, Liberal Democrat Shadow Chancellor, says:
“We must find a way to split the banks so that the British public no longer props up ‘casino’ banking. Meanwhile, it is only right for the taxpayer to get a fair deal for the guarantee that they provide to the banking industry. A 10% levy on bank profits would be used to pay down the structural deficit that they are partly responsible for creating.”
Hilary Myers, Liberal Democrat Parliamentary Spokesperson for Calder Valley, says:
“I think the idea of a 10% levy on bank profits is both fair and workable. It should raise about £2 billion and be much harder to “dodge” than Labour’s ill-thought-out proposal for a tax on bankers’ bonuses.”
For more information, visit: Creating a Banking Levy: A Fair Deal for the Taxpayer
