The tone has changed. There might not be another UK election for five years, but Jeremy Corbyn’s election as the head of the British Labour Party and his appointment of John McDonnell as shadow chancellor mean banker bashing is seriously back on the UK agenda.
We’ve listed Corbyn and McDonnell’s plans for the British banking industry below. Even if they’re not elected, the uncertainty created by a vehemently anti-capitalist opposition seems likely to be pernicious. The City of London is suddenly less of an appealing place to open a new business than it was last week.
1. Higher income tax
McDonnell wants to impose a 60% marginal rate of tax on all incomes above £100k and a wealth tax on the richest 10%. Corbyn, however, has indicated that the highest rate of tax would rise to 50%. National insurance is also expected to increase.
Both measures could encourage the relocation of finance jobs to Singapore and Hong Kong, where the top marginal tax rates are 20% or less.
2. A punitive windfall tax on the UK finance industry
Corbyn himself has indicated that he would punish banks that were bailed out by the government with a one-off tax on ‘excessive profits’ in 2020. It’s not clear what this means exactly, although it seems certain that RBS and Lloyds would both be affected. Banks like HSBC and Standard Chartered, which have already complained about the British banking levy, are likely to contemplate moving their headquarters out of London with a renewed sense of urgency.
3. Banker bashing
Seven years after the financial crisis, bankers in the City of London are about to be vigorously re-branded as villains. “Can we recognise that the banking crisis in 2008 was not caused by the excessive wages of those that sweep the streets of Islington, or the wages of nurses in our local hospital, or the wage of any other public sector worker,” said Corbyn in a recent speech. “It was caused by an out-of-control banking system.”
Irrespective of Corbyn’s chances of election, banker bashing is going to become a renewed part of the British political landscape.
4. Thousands of job losses at Goldman Sachs
Corbyn is pro-withdrawal from the European Union. Despite building a new 850,000 square foot office in London, Goldman Sachs has indicated that if the UK leaves the EU, it would likely move jobs out of the City. Corbyn’s election has made Brexit more likely – and with it, the potential for thousands of job cuts at Goldman Sachs International.
5. Nationalised banks, green investment banks and mutual societies
If you want to work for a nationalised bank, a ‘national investment bank’, or a building society, a Corbyn/McDonnell administration will be for you. Corbyn is not a fan of renationalising Lloyds and RBS and would prefer to keep them in public hands. He also wants to create a national investment bank to invest in state infrastructure projects. And he wants to encourage mutual societies like the Nationwide and the Coop as vehicles for individuals to save and borrow to buy homes.
6. Fewer trading jobs
Corbyn and McDonnell are in favour of the sort of ‘Financial Transaction Tax’ (FTT) already mooted by the European Union, but resisted by the current Conservative administration. The EU wants to impose a tax of 0.01% on share and bond transactions. Italy’s introduction of an FTT in March 2013 was followed by a 39% drop in share trading volumes. Lower volumes are bad news for trading businesses whose revenues are a percentage of the trades that take place.
7. Massive restructuring
British banks are struggling to implement a ‘ring fence’ between their investment banking and retail banking businesses, with Barclays already complaining about the cost of the process. Corbyn would seemingly go several steps further – he wants to break up banks into investment banking and retail banking units. This would mean more restructuring costs and a higher cost of capital for investment banking units, rendering some trading activities uneconomical. It would, however, create plenty of jobs for consultants and back office staff.
The most pernicious effect of a Corbyn administration – and even the potentiality of a Corbyn administration – is likely to be the uncertainty. Political risk is now an real in the UK. Which bank will want to build its presence in the City of London when there’s even a faint chance of an anti-capitalist, anti-banking government in five years’ time?