9th October 2015

FSCS funding, the third way

The Tory party conference can always be relied upon to deliver some interesting sound bites.

One of the better ones for the financial adviser community was the most welcomed observation from Mark Garnier MP who sits on the Treasury Select Committee and has done so for some five years. 

I know Mark and have met with him on a number of occasions. He seems a very decent, intelligent, forward thinking guy.

So when hearing and welcoming the news that he felt that banking fines should be used to reduce the burden of regulatory cost, in particular that of the FSCS levy, perhaps a further consideration for Mark is to investigate is why are the fines so very large and not levied on individuals? The reality, I suspect, is that these fines are not a punishment, they are just a tax revenue raising opportunity that nobody could possibly object to…..ever?

Over the last century or two the nations wealth and success was built on our vast below ground natural resources.

Coal, tin, oil, sand, cement, gravel extraction have all played their part but many fear that these resources have a limited life as dwindling stocks make it more expensive to recover. 

Of course with all natural resources there is also a tax raising opportunity but if stocks of natural resource reduce or become exhausted this will, in turn, see tax revenues reduce and that spells trouble for HM Treasury. 

But we need no longer fear where the nation will turn to get more ‘natural resources’ from because of some very clever HM Treasury ‘fine fracking’ on the part of the last government.

He is 100% correct in saying that a debate was needed about where the money went. 

For those that have no idea on the sheer magnitude of banking fines, this may help in understanding where they go and why.

A decision taken by Parliament on 27th February 2013 has seen a very big fiscal ‘gusher’ explode out of the ground in the form of 2014 banking fines being paid away to HM Treasury.

Banking fines levied by the FCA in 2014 were £1.462bn. 

To put some contextual scale to this massive amount, the total revenue raised for alcohol and tobacco in 2014 was £1.97bn- that equates to 4% of total UK taxation revenues according to HMRC figures.

The FCA was obliged by statute to pay away £1.370bn of the fines the Treasury, the equivalent of 70% of all alcohol and tobacco levies for 2014.  

In the run up to the May 2015 election this is where the money was spent according to a reply to a Panacea FOI request reply:  

£35,000,000 to the Armed Forces

£10,000,000 to Armed Forces covenant

£40,000,000 toward veterans’ accommodation

£20,000,000 to Childcare, but exactly what is not known

£10,000,000 to medical training, again, exactly what is not known

£10,000,000 to Blue Light charities, exactly which is not known

£10,000,000 to Youth United

£5,000,000 to the Imperial War Museum/ WW1 gallery refurbishments

£ 1,100,000 an approximate VAT rebate for the Tower of London poppies sale to allow more money raised to go to charity. This is not a government donation. It is a fine redistribution and a very cynical play upon public sentiment and the war dead of WW1.

That gave a grand total of £141,000,000 going toward good causes leaving a pre election pot of £1.322bn left over.

Note, no money to MAS, FSCS or Pensionwise- the most morally obvious homes for such largesse. 

I wish Mark and his TSC colleagues well but fear that the Manchester conference sound bite will fall on very deaf ears at HM Treasury.

The only real worry for HM Treasury will be what to do if the banks rehabilitate themselves.

FSA/FCA, Panacea Comment, Regulation