Chris Neal retired from fixed income and derivatives broking in the City in 1999. He is now CEO of the charity GB Job Clubs and administers The Jericho Fund, a micro finance project. This platform piece takes the form of "an open letter to Britain's political leaders".
We have endured a torrid time of late and appear to be in the process of throwing the baby out with the bath water. For years now we have benefited from a robust and thriving financial services sector. City firms contributed £67.8billion to tax coffers in 2007 but this had already dropped to £32.5billion to the end of March 2009. Arguably this is the most transportable global business; consequently droves of hedge funds and private equity firms are relocating to jurisdictions with tax friendly regimes.
Well chaps, let me make this clear: we are losing these tax revenues and the high earning individuals that spend lavishly on smart homes and consumer lifestyle – which benefits society as a whole. These guys have had enough. They are not all responsible for what happened, yet the knock-on effect of their departure is plain to see but you are all ignoring it: choosing to kill the golden goose with higher taxes and by handing over regulation to an unelected Brussels elite.
Bankers have been demonised and admittedly a few in the industry share culpability for the credit crisis. But let us not forget that the regulatory framework in which they operated was a self serving system that encouraged profligacy. The more they traded, the greater the sophistication of the derivatives and the more the Exchequer benefited.
None of you paid attention to the irresponsible levels of leverage deployed by these institutions. For example, RBS was exposed to 34 times its depositor base – yes, for every £1 deposited in their bank they had placed £34 of bets. No wonder they needed a bail out. I commend to you Toby Baxendale’s excellent treatise. It may help you understand that there is an honest money solution rather than your favoured knee-jerk Keynesian control of interest rates and money supply that is the root cause of boom and bust.
At present we are witnessing another monumental asset bubble in the making because you believe that you can solve our fiscal ills by encouraging spending. We are individually and corporately over-borrowed. Our culture of instant gratification is blowing up in our faces and rather than face facts you are advocating that we spend our way out of trouble. In his article Happy days are here again? Another view from the City, Ewen Stewart justifiably describes it thus:
“This recovery shows all the hallmarks of a drug addict who claims to be going straight injecting a further mighty dose of the substance that has caused such decay in the first place to prolong the party.”
You have a chance to not just reverse the current exodus but turn GB Plc into the global financial centre of choice, heralding a new age of sustainable prosperity. Gentlemen, you have adeptly focused public anger on the banking sector to deflect attention from the parlous state of mistrust now exposed in your Westminster Village. You need a thriving economy if you want to help the poorest in society and those entrenched in economic dependency so if you want to “hug a hoodie” you need to befriend a banker!
Forget this politics of envy witch hunt mentality being propagated in Westminster and Fleet Street. Encourage enterprise by leaving the top rate of tax at 40% and promise to reduce it to 35% as the economy recovers.
Introduce legislation to separate consumer banking from investment banking along the lines of Glass Steagall, which worked so successfully in the US until Bill Clinton had it removed.
Loan to value criteria and ‘mark to market’ valuation methods are seriously flawed they have become known as ‘mark to make believe’.
Tighten up the rules, allow the Bank of England to regulate the wholesale market and the FSA to police the schemes available to investors.
Crucially, ensure that the power to regulate our financial sector is not deferred to Brussels as they will surely emasculate this jewel in our economic crown.