Banker-bashing makes a comeback in general election campaign

Banker-bashing is back. The City had thought the worst was over, as a recovering UK economy reduced public anger, but the general election campaign that culminates in Thursday's vote has tapped into deep, lingering resentment towards a profession that triggered the financial crisis.

Over the past few weeks, the chorus of criticism from politicians, the media and the public has been on a par with the early days of the coalition government.

Many in the City are still loath to speak out in their own defence, fearing the volume will increase further.

But with banks such as HSBC and Standard Chartered debating whether they should remain headquartered in the UK, and overseas banks examining other financial centres, some are convinced the latest criticism from across the political spectrum will do long-term damage.

"Banking is by far Britain's leading export industry, and one of its biggest taxpayers, but politicians need to remember it is very internationally mobile," says Anthony Browne, chief executive of the British Bankers' Association.

Here are the main reasons why the industry feels under pressure.

For many, the words scandal and banking have become almost synonymous because of a succession of misdeeds - interest rate and foreign exchange price fixing, mis-selling insurance and investments, laundering drug money, breaching sanctions, the list goes on.

Banks have themselves to blame and there has been a severe crackdown to punish institutions that were clearly under-regulated in the run-up to the crisis.

However, in recent weeks, political opportunism has been obvious. The scandal surrounding HSBC's Swiss private bank had been swirling for years but when it resurfaced in February, the revelations were seized upon by politicians.

The Conservatives accused the last Labour government of presiding over a lax regime of bank supervision. Labour pinned much of the blame on former HSBC boss Lord Stephen Green, who moved from the bank to be Tory trade minister.

A double-bill quizzing of HSBC executives by parliamentary committees stoked the scandal. It also appeared to raise the volume of negative rhetoric, not just towards HSBC and the banking sector, but the entire City.

Sir Gerry Grimstone, chairman of the CityUK lobby group, says this is both unfair and undermines the industry that is the powerhouse of the UK economy. "There is a political desire to confuse certain behaviour by certain bankers at certain banks with the financial services industry as a whole," he says. "But this is not a systemic issue."

At the same time, many in the industry are frustrated about the perception that scandals are continuing, when in most cases they are historical misdeeds emerging years after the event.

Most bank bosses acknowledge the industry could do more to convince the sceptics it has changed. "We need to dig in and demonstrate the value of finance," says the UK head of one bank. "In particular we need to work hard . . . to build trust."

If there is one question that worries the City and UK big business, it is the Conservative promise to hold a referendum on EU membership by the end of 2017 - this from a traditionally pro-business party. On the BBC last week, the prime minister appeared to harden his stance, saying he would not form a government and lead the country unless he had free rein to deliver a referendum.

Khaled Said, managing partner at Capital Generation Partners, a private investment firm, says: "You can't be anti-European and pro-business. And you can't be anti-bank and pro-business. Those are oxymorons."

Conservative policy on the EU, which has been influenced by anti-immigration pressure from the right of the party, worries financiers for two reasons. First, Brexit would remove easy access to the single market. Second, it would make it harder to employ the best staff from across the continent.

The ever-increasing levy - a tax on banks' balance sheets - is another big bugbear. Applied to about 30 banks - on the UK liabilities of overseas banks and global liabilities of UK banks - the levy has been raised nine times since it was introduced four years ago. Following the latest increase in the March Budget to 0.21 per cent, it is projected to raise £3.7bn.

"Talk to civil servants in the Treasury and they'll tell you that in the old days, if there was a hole in the budget numbers, it would get plugged with duties on cigarettes or property," says one banker who has worked closely with the government. "Now they use the bank levy."

Previous rises had been justified by the chancellor's desire to raise a certain amount - £2.5bn - a target that became impossible to meet as banks' balance sheets shrank. Not this time, and financiers complain the goalposts have shifted.

"Everyone was shocked," says one senior industry figure. "There is a sense among investors that this was a reckless act." Another describes the Budget move as "irresponsible".

The Institute for Fiscal Studies think-tank has described the use of a target amount of revenue as "not a good way to make tax policy", highlighting the "danger of relying on this as a cash cow".

Along with the question mark over EU membership, it is a key factor for the debates at both HSBC and Standard Chartered about whether they should move their headquarters to Asia.

The Labour party has promised to increase the levy further. In an interview with the Financial Times last week, shadow chancellor Ed Balls did not explain how that fitted with his assurance that a Labour government was determined not to drive banks out of Britain with "heavy-handed" policies.

Multibillion pound compensation costs and regulatory fines are a sore point but given the seriousness of past scandals, few bankers will complain publicly.

But plenty voice their dismay in private - particularly about the long-running compensation scheme for the mis-selling of payment protection insurance and the level of fines imposed for what some have argued were relatively minor offences.

Last week's promise by Mr Cameron that £200m of fines extracted from Deutsche Bank would be used to fund a programme to train 50,000 apprentices added a new political dimension to the fines.

A few million pounds of penalties had previously been directed towards charities, but the new scheme is bigger and more barbed. "This is about taking money off those who represent Labour's failed past; and giving to those who through their hard work and endeavour can represent a brighter Conservative future," Mr Cameron said.

Many bankers criticise the cynicism of the idea. But a few see an upside. "Using Libor fines for good deeds makes banks part of a positive story," says one bank adviser. "That is a rare thing."

The bank levy has annoyed parts of the City, but the Conservative party's otherwise business-friendly tax policies are a decent sweetener - especially compared with those of the other main parties.

The Liberal Democrats want to raise corporation tax from 20 to 28 per cent for banks, though for many that would be far less of a burden than the levy. Applied to HSBC's 2014 earnings, for example, it would equate to an extra $27m tax charge, compared with the $1.1bn cost of the levy.

But it is Labour's tax policies that really scare the City. As well as abolishing non-domicile status for income tax, which cuts liabilities for thousands of mostly foreign-born City workers, Ed Miliband has promised a "mansion tax" on properties worth more than £2m - disproportionately owned by City workers.

Then there is the planned tax on bankers' bonuses - a policy that some asset managers, who are on average better paid than bankers, fear may be extended to them. This would be compounded by a proposal to increase the bonus "clawback" from the current seven years, meaning bankers guilty of misconduct could have to pay back bonuses they received up to 10 years earlier.

As one veteran financier who has advised Whitehall says: "From the City's point of view, this coalition has been relatively civilised. But if these are the good guys - with an exorbitant bank levy and PPI compensation running unfettered - then what happens with the bad guys?

"The City's had an amazing 15-year run. People now are thinking that almost regardless of who wins the election, it will go on a downward trajectory."

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