Chancellor John Healey has come under fire over his first Budget as the Treasury called high-street bank chiefs to urge them not to protest tax hikes, financial columnist Ruth Sunderland wrote.
Writing in the week of the 40th anniversary of the City of London's Big Bang deregulation, Sunderland described Healey's fiscal statement as a "deadening first Budget" and argued that Margaret Thatcher's reforms are now a distant memory under Prime Minister Andy Burnham and his Chancellor.
According to informed sources cited by Sunderland, the chief executives of Britain's high-street lenders have been receiving calls from the Treasury assuring them that tax increases on banks are temporary and imploring them not to protest against the measures.
Sunderland wrote that hiking taxes on banks will hurt economic growth, a reality she said Healey realises even if some of his Left-wing colleagues do not. Several chief executives who recently spoke to the columnist told her they wish for a Prime Minister in the mould of Thatcher.
Treasury calls and missed City tax reforms
Rather than raising taxes on lenders, Sunderland argued that the Chancellor could have lifted spirits in the City of London by scrapping stamp duty on share deals. He could also have introduced inheritance tax relief on pensions invested in the United Kingdom, a measure proposed by the Capital Markets Industry Taskforce.
In the United Kingdom, purchases of shares in British-incorporated companies are subject to a transaction levy that financial sector groups say raises the cost of capital and deters domestic investors. The Capital Markets Industry Taskforce brings together leaders from London's financial services sector and listed companies to recommend reforms aimed at channelling British retirement savings into domestic equities.
Individual share ownership in Britain has dwindled, leaving the modern City of London as what Sunderland called a "ghostly facsimile of its brash, buoyant Big Bang era incarnation".
Margaret Thatcher and the City of London Big Bang
Sunderland highlighted the "bitter irony" that Healey delivered his Budget during the 40th anniversary week of Big Bang, the sweeping market reforms under Thatcher that turned the City from a "snobby, boozy male backwater into a global force".
Big Bang was the flagship deregulation of London's financial markets under Thatcher's Conservative government, abolishing fixed minimum commission charges on share trades and ending the traditional separation between stockjobbers and stockbrokers. The overhaul shifted trading from the floor of the London Stock Exchange to electronic screens and opened British brokerages to ownership by foreign and commercial banks.
The opening up of the Square Mile, the historic financial district of the City of London, went hand-in-hand with a broader transformation of the economy that lifted "the pall of the 1970s". Those reforms included scrapping exchange controls, removing state restrictions on moving currency across borders and enabling the City to compete on a world stage.
The Guildhall speech and popular capitalism
Two weeks after Big Bang, Thatcher delivered a speech at the Lord Mayor's Banquet in the Guildhall in the heart of the Square Mile. While the address is not remembered in the same way as famous rhetorical phrases such as "The lady's not for turning", Sunderland noted that for economists it was a highly significant early statement of her vision of popular capitalism.
The Guildhall serves as the ceremonial centre of the City of London Corporation, where the sitting Prime Minister traditionally delivers a major address at the annual banquet hosted by the Lord Mayor. In Thatcher's eyes, popular capitalism went beyond economics and stood as a social and moral philosophy.
She saw the great reform of her time as making more and more people owners, just as democracy and the right to vote had been the mission for earlier generations.
Right to buy and utility privatisations
Some 2.8 million council and social homes have been sold under Thatcher's right-to-buy reforms, which gave local authority tenants the legal right to purchase their rented homes at a discount. Building societies, mutual institutions owned by savers and borrowers that had previously operated what Sunderland called a "cosy cartel", were allowed to demutualise and float on the stock market.
The privatisation of state utilities was, in the words of one economist cited by Sunderland, the largest transfer of power and property since the dissolution of the monasteries under King Henry VIII, serving as a blueprint for the world.
Britain regained international prestige through Thatcher's relationship with United States President Ronald Reagan, while the fall of the Berlin Wall made it appear that liberal capitalism had won a decisive victory. Sunderland observed that plenty of critics hated the programme at the time and that some, including Prime Minister Andy Burnham, "hate it still".
Unintended consequences and the outlook for growth
Sunderland acknowledged that those reforms brought unintended consequences. Demutualised building societies were engulfed by the financial crisis, while privatised utilities such as Thames Water, the water and wastewater provider for London and the Thames Valley, have in her words "made fools of us all".
Paternalistic final-salary pension schemes, which guarantee retirees a set income based on earnings and service, are heading for extinction in the private sector. Meanwhile, fiscal drag, where frozen thresholds pull earners into higher tax brackets, is drawing millions of modestly better-off people into tax rates meant for the rich, prompting Sunderland to recall Chancellor Nigel Lawson's tax-cutting Budget of 1988.
At the Guildhall 40 years ago, Thatcher said people need incentives, the freedom and dignity of ownership, the resources to support a family, a sense of security approaching retirement and something to leave as an inheritance. Sunderland wrote that Thatcher's belief in thrift, hard work and fair reward remains the underpinning for a sound economy, warning that with Burnham and Healey at the helm Britain is less likely to have another Big Bang than an "Epic Fail".
