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It is one of the abiding political myths in this country that a Conservative Government is good to the City as opposed to being good for it. The financial community may prefer the style of government and be more in tune with the philosophies espoused than they are with Labour but it is a fact that when it comes to things like being nasty to investment bankers, the Tories are much more likely to be harsh than the current Government which from the Prime Minister down has repeatedly appeared to have been mesmerised by them. One fears therefore that the enthusiasm with which most of the City is looking forward to a change of Government is rather reminiscent of the observation made by George Bernard Shaw on the willingness of divorced people to get married for a second time. It was he said, the triumph of hope over experience.
It is known for example that Shadow Chancellor George Osborne and his cohorts have been looking closely at the 1981 Budget of Sir Geoffrey Howe, delivered as the next one will be , at a time of deep economic malaise. One of the features of this Budget was a windfall tax on the banks — a levy on their deposits to raise £400 million which at the time was an amount of money worth something rather than just being a rounding error in the Goldman Sachs bonus pool. The equivalent sum today, what with inflation and the growth in the economy would probably be getting on for £4 billion. Not content with that, Nigel Lawson when it was his turn to be chancellor, juggled with the deferred tax rules in a way which ruined a lucrative sideline the banks had in leasing finance.
The time is surely right for another such move given the way banks have been using free money from the state, here and in America to subsidise their return to gambling in the markets and all the profits which go with it.
It is a feature of the British tax system that when a company makes a loss it can offset that loss against future profits, so that it pays no tax until it has made all the loss back and moved on. Thus it was estimated that when Merrill Lynch booked all its billions of losses worldwide to the British business it would pay no tax here for at least 20 years. Others admittedly are less extreme but most nevertheless expect not to pay UK tax for some considerable time, because it will take years to absorb their credit crunch losses.
This, however, is one area where the British tax authorities are unusually generous. All advanced countries allow losses against tax but in several other EU countries the right to offset only lasts three years and if their losses have not been used up by then they are lost. In Britain they can be rolled over for as long as the company needs.
A neat change, which would satisfy the public's lust for revenge, punish the banks for their reluctance sensibly to engage in the debate about reform, provide a much needed boost to the Exchequer, and would be true to the Tory tradition of bank bashing would be to impose such a time limit on the use of their losses.
That probably is why one hears that it is being actively considered and might well be part of their first budget — unless Alistair Darling gets in first in which case of course it will be roundly condemned.
GM steers a tricky course
It is getting difficult to hold onto reality in the world of bailouts and rescues. It was hard enough to grasp the idea as spun by the Prime Minister that it was a sign of success to inject yet more billions of taxpayer money into the banks so that we could have less control over them. But then comes the news that General Motors has decided after all not to sell its heavily loss making European car division.
This the same GM which filed for bankruptcy back in the summer and is only with us now because of the $50 billion of aid from the US government.
There seem only two possible explanations for the U turn — or a third if you think management has taken leave of its senses. One is that though the putative buyer was a Canadian company called Magna, there was Russian money backing the deal. It may be that American amour propre could not come to terms with having its iconic manufacturing company rescued by the Russians on this the 20th anniversary of the fall of the Berlin Wall. Or perhaps they were worried about the transfer of intellectual property — though these are Vauxhalls and Opels we are talking about.
The other explanation — which may actually be closer to the truth — is that they no longer thought they would get the sale to Magna past the EU competition commissioner Neelie Kroes. Perhaps they saw her rough up our banks and rather than risk the public humiliation of being ordered to abandon the sale they thought they would get in first and do so voluntarily.
Should the car workers rejoice? Unfortunately not. Europe can produce 10 cars for every seven it is able to sell. Plant closures and job losses on a heroic scale seem unavoidable.
The executives in Detroit may like playing the Grand old Duke of York but their 10,000 men seem unlikely to keep their jobs.
