Political Power Is More Important Than The Economy

So the Tories are now deciding that political power is more important than the economy.

The Labour party have already done this but now the Conservatives, in their desperation for office, have committed themselves to unilateral taxes on the banking sector.

Let us extrapolate on this.

Whatever you think of banks, in the end, they are just businesses, like any other business. Businesses have stock holders who demand returns for their money, staff who want to be paid the best deal they can get. They also have Directors whose responsibility is to all these people, not to the country in which they happen to operate.

Now let us imagine a country. A country with, as it happens, an appalling twin deficit problem, which taxes its highly paid staff far more than its neighbouring states. It also imposes corporate, windfall and, new levy taxes well in excess of those same neighbouring states.

Those neighbouring states are just as stable, both financially and legally, as the country in question. They even have more lenient capital requirement and regulatory regimes.

A country that burdens completely portable businesses with unwarranted taxes deserves to lose them. It does not take much to envisage the conversations going on in board rooms across the City at the moment.

An indicator to watch was the departure of the CEO of HSBC to Hong Kong. He has given up all the political and envious journalistic reporting and 50% tax rate problems for the Far East. He is now just taxed at the princely rate of 15%.

Just this one person will probably cost the exchequer one million pounds per year. You can be sure that where the CEO goes the rest of the senior board will follow.

The hatred being generated against the City is self defeating. Invisible earnings, ie UK financial exports, for the UK are massively positive. They are far more than the numbers talked about in State aid. Also, note that the State aid was not free.

London has maintained its financial hegemony for a century or more but ignorant politicians are risking it all merely on getting their five years of power.

Of course in the financial markets we are already seeing the problems. Unfortunately the temptation is to say that the trend is definitely Sterling unfriendly at the moment. The Pound/Dollar spread has been tumbling since August 2009.

Whilst it is true to say that much of the potential bad news is already known and therefore should not be a surprise, this is a long way from suggesting that our political masters, of any persuasion, have any real appetite to attempt any real solutions.

by: Peter Jones

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