Throwing the Toys Out the Pram: the Ethics of the City

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Recently, Chancellor George Osborne announced an increase in his ‘Bank Levy’ on banks in the City in order to raise an extra £800 million, thus taking the total sum to be ascertained by the government to £2.5 billion. In reaction to this, the City released rather foul rumblings and bitter comments, with an apparent conference due swiftly between heads of the major banks in the City to discuss their official reaction to the levy raise – namely whether to press on with reaching an agreement on lending and bonuses with the government, by the name ‘Project Merlin’, or whether to abandon talks in an effort to ‘throw their toys out of the pram’ to display their anger at recent decisions. The question is therefore raised, on what grounds can the banks, who cost the economy and eventually the taxpayer so much, morally claim any high ground over the government and storm out of talks aimed at making the banks contribute more to the economy they so badly damaged?

Apparently its a matter of principle: the City sees the recent move not one of moral or ethical play by the government attempting to regain money lost to the banks from the taxpayer, but simply political point scoring. City sources are said to believe that the new raise is merely ‘bashing the banks’ in order to sway public approval towards an increasingly unpopular government. The banks are reportedly feeling almost betrayed by the government as they saw their recent efforts in negotiations for Project Merlin as ample sign that they are being considerate of public opinion and taxpayer’s money as well as their role in stimulating the economy. Firstly, the question begs as to what exactly is ‘Project Merlin’? The supposed all important package being labelled by the banks and government alike as the saviour to the economy and reputation of the banking sector is being thrashed out by government advisers and policy units with the heads of major banks in the City, namely; HSBC, Royal Bank of Scotland, Barclays, and Lloyds TSB. The main bulk of the deal centres around the government’s attempt to try and get banks to start lending to the economy again at small and medium business level, manifesting itself through an attempted deal for the main banks to lend around £1.5 billion to a ‘Big Society Bank’. Another brain child of David Cameron’s great ‘Big Society’, the bank would provide low cost loans to small and medium businesses for expansion and set-up. It would also seek to provide money to councils running Big Society projects and so on and so forth, as well as generally be a reliable source of ethical trading and investment. The Project also looks at tackling the excess in the bonus culture currently all too often displayed in the sector, through changing the manner in which bonuses are paid, as well as limiting their size. The deal would seem to be quite radical and asking for some very swift reforms in an age old system build in merely maximising profit and shareholder returns at all costs.

However, the fact of the matter is that the main banks involved are partly-, and in some cases majority-, owned by the taxpayer. This begs the question on what grounds do they stand to assert that somehow the government is being unfair in claiming money back for the public purse from their profits? The sums involved in bailing out the banking sector in 2008 and 2009 are astronomical, the newspaper The Independent claims the figure to be around £800 billion. The figures for profits made by the sector are equally mind blowing, with banks reporting around £40 billion in profits for 2007 before the credit crunch hit. The budget deficit stands at around £158 billion, with practically all of it down to the expenses of the bailouts. What then is a ‘fair share’ for the banks to pay? So far as sums of money go, the picture is unfortunately much more complicated than simply considering who owes who what and so on. However the question of how much morally and ethically the bankers can cry foul play over government and public desire for them to go the extra mile to assist the deficit repayment is almost rhetorical.

The banking sector really has no place in trying to convince the public or government that its participation in Project Merlin is some kind of favour to the economy or the taxpayer; the fact is the sector owes its very survival to the pockets of the citizens of the UK, therefore being expected to lend money at pre-recession rates and show restraint on bonus payments is not an unreasonable situation to find itself in when it is considered that the cost of the bailout exceeds any profits the banks may make this year by twenty times. The banks aren’t having any form of super bonus tax forced upon them, nor some form of ‘Robin Hood’ tax on their balance sheets. There is simply a Levy, present at similar levels worldwide, and a sense of expectancy from the public that the bankers do their part. If this expectation is enough for the sector to go around ‘throwing the toys out of the pram’, it will expose the City as what many accuse it of being; a stroppy, greedy child.

Article by Patrick English. Edited by Joe Ahern.

More On This Story

[1] http://www.telegraph.co.uk/finance/comment/kamal-ahmed/8181314/Project-Merlin-is-not-looking-so-magical.html
[2] http://www.bbc.co.uk/news/business-12389416
[3] http://www.guardian.co.uk/money/2007/feb/19/business.accounts