IMF plan: the wrong kind of reform
Thursday, April 22, 2010
IT is a quote that sums up the new cross-party consensus on London’s financial services industry. Reacting to proposals from the International Monetary Fund, which would hit all financial firms – including hedge funds and insurance companies, not just banks – with two very large new taxes, Alistair Darling had this to say: “The recognition that banks should make a contribution to the society in which they operate is right.” Really? All those firms and people don’t currently contribute anything? Tens of billions of pounds in tax and hundreds of thousands of jobs apparently mean little to a political establishment which believes the City can be replaced by green industries or a reborn manufacturing base. And why are firms such as Aviva, Prudential, Axa, Lloyds of London or Henderson Global Investors going to be hit, even though nobody has linked them with the crisis?
The City needs substantial reforms to make it more robust (a point which I have been making ad nauseam). The pre-2007 system was always a disaster waiting to happen, as many far-sighted economists had long warned. But there are good reforms – and then there are punitive ones which hit innocent bystanders rather than tackling the real causes of the crisis.
The IMF is completely wrong about some things – its FAT tax (explained in detail in the article below) will increase the costs to consumers without delivering commensurate improvements to stability. Even if adopted globally, it will cost London large numbers of jobs as the industry shrinks, hit share prices (and hence pension funds), depress house prices and cripple GDP growth.
This article was posted: Thursday, April 22, 2010 at 8:40 am