Project Merlin: What They're not Telling you

Derek Suede, 11 February 2011

Categories: BBC News | Politics | Finance | Conservative Party |

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On the 9th February 2011, the conservatives announced that they will increase the bank levy from £1.7bn to £2.5bn, an increase of £800m. This is surely a step in the right direction and sounds like a clampdown on the banks at last. On its news website the BBC has posted a full summary of 'Project Merlin', in which it explains to its readers the 'ins' and 'outs' of this strategy and how it will help to reduce the country's deficit and simultaneously stimulate economic growth. The article is certainly a feel good piece, throwing out statements like:

Under Project Merlin, banks will lend about £190bn to businesses this year - including £76bn to small firms - curb bonuses and reveal some salary details of their top earners.

On Tuesday, the government increased a levy on banks to £2.5bn this year - raising an extra £800m.

Other pledges include providing £200m of capital for David Cameron's Big Society Bank, which is supposed to finance community projects.

The first point which mentions the curbing of bonuses is a classic example of feeding the reader a line in the hope that it will be swallowed without question. What is not discussed is that if bankers also receive bonuses in the form of shares, these will not be included in the revealed salary details. George Osborne openly admitted this fact on a BBC parliament programme entitled "Bank levy discussion" which was aired just once. Conveniently, this all happened while the rest of the news-watching world was transfixed on the Mubarak situation in Egypt.

On BBC Parliament on the 10th February, a Labour MP asked if the amount of shares received be will also be disclosed. Osborne replied in a nonchalant manner "No they will not, but you don't need to worry about that, as the shares will act as an incentive to not let the banks fail". This is true, but if bankers who received bonuses as shares were to have these shares transferred to tax havens, and then instantly sold, something very interesting would happen. Previously, they would be taxed in the tax haven at (for example) 10%. When the profits were transferred to the UK they would be taxed the remaining 18%, in order to bring the earnings in line with the Corporation Tax of 28%. Under 'Project Merlin' this would no longer be the case. Only the initial 10% would be taxed. On Sunday 6th February David Cameron told The Telegraph that he would "love to see tax reduction". Well now he is seeing this, but the middle to lower class earners will not.

The second point, that the government has increased a levy on banks to £2.5bn, creates the impression of a hefty charge that acts as a punishment to the banks. This could not be further from the truth when you realise the following: the amount of £2.5bn is in fact 0.075% of all debts of the UK Banks. By paying this amount, the tax paid on the long term debts is cut in half.

The third point listed is possibly the most amusing and disconcerting at the same time. This £200m is intended to provide the funding for community projects. To put this into perspective, in 2009/2010 labour agreed that over a 3 year period Gypsy and travelling communities would receive £300m for building better sites for their mobile homes. These communities represent a very small proportion of the UK population. With this in mind, what is £200 million going to do for some of the poorest areas in the UK who depend on government funding?

Coming back to the BBC article on 'Project Merlin', the article attempts to be balanced by stating that Liberal Democrat Treasury Spokesman Lord Oakeshott has resigned following the announcement. Little attention is given in general on the BBC website as the real reasons behind his resignation.

The state of affairs is summed up by the attitude of Treasury sources quoted on the BBC as saying that the time had come to move “from retribution to recovery” – focussing on the lending boost from banks rather than the issues over bonuses. It is not time to move away from retribution. The BBC’s coverage of Project Merlin presents readers with many facts and figures, but leaves some important questions unanswered. I would like to see the following questions answered:

When bankers sell their shares that they receive as bonuses abroad, will the amount of cash generated from the sales be published?

Why have the BBC, while presenting certain facts, ignored the effect that Project Merlin has on previous laws?

Categories in which this article appears: BBC News | Politics | Finance | Conservative Party |

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