The usual suspects are in full-on froth mode about the non-news on Goldman Sachs allegedly moving to somewhere godawful to escape a small, one-off tax on salaries.
Obviously, like nearly all right-wing frothers nearly all the time, they’re talking complete and utter bollocks. US culture site the Awl nails it on why:
Goldman Sachs “is understood to be considering its options in the wake of the UK’s windfall tax on bankers’ bonuses, a new 50pc top income tax rate, and increased banking regulations” is hilarious, and it is also a dead giveaway that the Telegraph uses the phrasing “is understood” to introduce this idea. Let’s see: here’s an incredibly-secretive, super-private financial institution of which it can be “understood” that they’re going directly to the papers as the first volley in a bargaining plan. But: hilarious! They’re going to pretend that they’re willing to leave London? They’re going to offshore the London office? To where? Glamorous downtown Sofia? Belfast? Tallinn or Toronto? Think it through, boys. Nobody who works in that office will leave London! What’s the point of being rich if you have to live somewhere crappy? It just doesn’t work like that. You can near-shore and off-shore the jobs no one wants to Salt Lake City or wherever—but you can’t move the income producers to a town where they can’t get a cab and a fat steak. If you give Goldman Sachs anything at all to stay put, it means you both are huge morons, just like New York City mayor Mike Bloomberg was when GS pretended it was going to move from downtown Manhattan to more expensive quarters in midtown, and they wouldn’t even have done that. Ever.
Word.
Word also. Why will nobody believe this when I say it? Must I put it in print or put it more belligerently?
bye-bye! i'll wave you guys off at the dockside!
Word!
You have to ask yourself, if GS did offshore its shit, where the down side would lie. Significant loss of tax revenue? As the quote above points out, those wealth-generators aren't going anywhere and will just find jobs generating similar figures but possibly doing something slightly less sociopathic than investment banking (Matt Taibbi is super-awesome ~ http://www.rollingstone.com/politics/story/291273….
I'm struggling to think of any other down sides of GS relocating . . .
They pay gbp2-3bn in corporation + income tax every year, even if you don't believe in any of the trickle-down stuff (which there probably is some of).
The thing that often gets missed off about investment banking in the context of the UK is that it is massively beneficial to us, even when it's a net drag on the world.
In the US, where Wall Street mostly serves the domestic economy, excessive i-banking fees are a straightforward tax on raising capital, which redistributes money from the productive US economy to bankers.
But because London mostly serves businesses and governments located outside of the UK, the effect is to transfer money from other countries' productive economies to UK investment bankers, lawyers, consultants, accountants, etc – hence ensuring that a mining deal between a Qatari investor and a Russian company brings millions of pounds of benefit to the UK (both to GDP and to the taxman), which we'd never have seen otherwise.
Indeed, the benefits to UK GDP and to UK tax revenues from having done that over 2000-2007 far offset the costs of bailing out the banking sector in 2008-2010 (which, in any case, wasn't primarily focused on investment banking – the main problems were HBOS's appalling commercial loans, Northern Rock and B&B's dodgy residential loans, and RBS's leveraged buyout of ABN. Only the last of these is i-banking related in any meaningful sense).
Is that a good thing for the global economy? Probably not. Is it long-term sustainable? Probably not. But for the time being, does being an investment banking centre benefit the UK average-man-in-street? Yes, absolutely 100%.
(this has relevance to my new Iceland post as well. The Icelandic people are all terribly grumpy at the All The Bankers' Fault, Nothing To Do With The Rest Of Us recession they're having at the moment – but they were happy to take the vast financial benefits, in terms of average incomes for all Icelanders and in terms of government revenues, from 2001-2007.)
Banks won't move because of tax rules? Gosh, that's interesting.
So, err, why are the Eurodollar markets basid in London then? Isn't it because the US imposed taxes which London didn't?
Eurodollar markets initially arose (late 1950s) because the USSR was concerned the US would steal its dollar assets, and hence invested in US assets via British banks (on the grounds that we weren't hysterical paranoiacs about EVIL COMMUNISTS). They grew to massive levels (1970s/1980s) because of the US's Regulation Q, which capped interest rates below inflation. Tax wasn't a factor at all.
That's a good general rule of thumb when talking about financial services: taxing salaries, bonuses and profits won't drive people away – but imposing regulations that make it impossible to make the profits to pay the salaries and bonuses certainly will.
This explanation is flawed in my mind. London is an horrendous, freezing shithole.
Unlike the tropical paradises of Paris, Frankfurt and Zurich?
So, err, why are the Eurodollar markets basid in London then? Isn’t it because the US imposed taxes which London didn’t?
No, that's Worstall. They're based in London because of regulation Q.
Worstall's doing his carpet weaving thing over on the Iceland thread too, with similar accuracy.
In my experience, people will do a lot to avoid taxes, but moving country is very rarely one of these things. (Moving holding companies offshore is a different matter entirely, though it does rather depend on having a lot of capital losses or low latent capital gains on your subsidiaries.)
@JohnB
"Indeed, the benefits to UK GDP and to UK tax revenues from having done that over 2000-2007 far offset the costs of bailing out the banking sector in 2008-2010"
Really? Possibly in terms of the raw sums shifted into and out of the treasury (even then I'm sceptical), but in terms of market confidence they fucked us royally. The thousands of collapsed businessed, those of us who are unable to get a foothold on the property ladder and the soon-to-be 3 million unemployed should affirm that.
The tax revenue has to be seen in the context of what the bankers would be doing otherwise. Some would be not in London, of course, and that would all have gone. Others would be doing jobs, how much less paid I suppose would vary enormously.