Labour is desperate, but targeting banks would be a disaster

Telegraph

a day ago

Increasingly denied once-planned spending cuts, Rachel Reeves, the Chancellor, is desperate for alternatives to fill the gap.
Mercifully she has so far left the banks largely untouched. It's one of the few positives from a Government which otherwise seems minded to bear down on wealth as hard as it reasonably can.
But for how much longer can this comparative immunity last?
One year into government, and on immigration, welfare, the public finances and much else besides, meaningful policy reform has already ground to a halt, floored by mutiny on the backbenches.
If the Government cannot even get something as innocuous as abolition of the winter fuel allowance through Parliament – what hope is there for anything else?
Ministers can faff around with fiscal rules, Laffer curves, dynamic modelling and other such mechanisms designed to show the public finances in more sustainable form than they really are.
But the bottom line is that the Government is spending a lot more than it raises in revenues. And on the present trajectory, the gap will only worsen.
With planned spending cuts falling by the wayside, the Treasury is left, like Wilkins Micawber, hoping that something will turn up. Sadly, the much more likely prospect is that it won't.
If Reeves were to be honest with the British public, she would grasp the nettle, claim that things have changed and abandon her manifesto commitment not to raise any of the main sources of taxation.
Two pence in the pound on the basic, higher and additional rate of income tax would raise around £17.2bn, all other things being equal, and overnight solve all her immediate difficulties in making the numbers add up.
But the politics of it all would, of course, be terrible. So instead, she is left flailing around in the foothills of the tax system looking for crumbs that don't breach the letter of Labour's election promises.
Banks make an obvious target, so much so that it has surprised both the City – and many of those in her own ranks – that she hasn't already attempted to tap them.
It's amazing how quickly perceptions change. Just three years ago, the European banking system, including that of the UK, was still thought of as 'uninvestable' following the traumas of the financial crisis. Few investors would go anywhere near a sector still synonymous with failure and catastrophic loss of shareholder value.
But over the past two years, something miraculous has happened. After more than a decade of near-zero interest rate famine, interest rates have normalised again, and banks are once more relatively profitable beasts, with capital and liquidity buffers restored.