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Some sort of windfall tax may well be a justifiable part of any government plans to attack our deficit problems, but it should not be given the prominence that it is likely to receive this week.
A far greater problem is the level of government spending. This has risen from 36.6% of GDP in 2000, to 45% as the markets reached their peak a couple of years ago, to a predicted 54.1% next year (according to the OECD). Gordon Brown is set to announce £12 The pre budget report on Wednesday seems likely to include a one-off windfall tax on banks and wealthy individuals in the UK. It is not how they spend their money, but how the government spends it, that is the real, long-term issue for the UK.
The proposed windfall tax on banks and the wealthy, expected to be announced in the pre-budget report this week, will raise around £1 billion. This is, in terms of current spending deficits, a tiny amount of money. While it will be a popular measure, as it hits at the sector seen as having made excess an art form, it has to be questioned whether further knocking the banks is the best way forward.
For comparison, taking RBS as an example, every 10 pence gain in the share price makes the taxpayer, via the government's 84% shareholding, £9 billion. Would it not be better to encourage conditions where this bank could flourish? Surely that can be done without encouraging further abuses of the system. As it is, since the bonus row started, 1,000 staff are already said to have resigned from the bank. Further penalties on bank staff can surely only lead to that exodus increasing and that cannot be healthy for the bank, or it's share price.
billion of cuts spread over four years top combat this. Unfortunately, the NIESR (National Institute of Economic and Social Research) estimates a further £60 billion cuts [i]per year [/i]are necessary to solve the structural deficit problem. It will be interesting to see how much time is devoted to this issue in the pre-budget speech.
In markets Wall Street lost it's early sparkle in the afternoon and closed with only small gains. New Issue volumes in the US last week were $10.7 billion, only about 40% of the weekly average for the year. The cost of the US TARP program is now expected to be only $41 billion, much lower than earlier thought, with the banking sector providing a small profit for the government. Still a positive tone to markets, but little data anywhere today to provide a trend and as far as volumes go, December is upon us...'tis the season to be jolly....
