A naive market reaction, in our view, to news that Barclays is now subject to a full blown governmental investigation into its tax avoidance activities: shares down 3.1p at 87.8p during early trade on Tuesday.
Think about it. How can the government be seen to be offering financial help to a bank that aggressively seeks to undermine the Exchequer’s revenue base?
As far as the Great British Public is concerned, right now bankers should be pilloried, not pampered. Alastair Darling might prefer a pragmatic approach to supporting all the country’s financial institutions, but the real politics here dictate some sort of aggressive punitive action. If the prime minister is taking to the world stage to promote a global clampdown on tax avoidance, how can he be seen to allow an international avoidance factory to operate in his own back yard?
Allegations of wholesale tax avoidance through something called Project Knight, courtesy of the Liberal Democrats and played out first in the Sunday Times and then in the Guardian, are very damaging. What is reported to be a 110-strong team of people at Barclays Capital’s Structured Capital Markets division have clearly moved way beyond simple minimisation of UK tax bills to aggressively targeting the revenue base of host of countries, including the US.
It is impossible to avoid the image of bank executives scrambling to keep a lid on this affair. Barclays needs cash to either soak up directly the coming wave of corporate defaults and structured finance losses or to pay for a suitable insurance scheme, such as the one on offer from the British government. But the price of that support is the bank signing up to the equivalent of a Good Citizenship charter.
The Guardian on Tuesday told its readers that documents supplied by a so far unidentified whistleblower had been posted on its website. But if you visit www.guardian.co.uk you will search in vain. M’learneds were clearly in action in the middle of the night.
On the matter of Guardian Newspapers versus Messrs John Varley, Robert Diamond and Roger Jenkins, which side is it sensible to take, given the Guardian’s form?
Just look at this quote from an unnamed former Inland Revenue official:
He said HMRC “will not be provided with anything about the counterparties, and the structures which each scheme employs will not usually be volunteered. A group the size of Barclays will have hundreds of subsidiaries, and will submit its accounts and computations by the vanload to a relatively small team of investigators.
“There is plenty of scope for things to be missed or misunderstood, and the bank will not only volunteer nothing, leaving the inspector to ask precisely the right questions, but will also, with the help of advisers, craft replies to HMRC questions with a view to giving factually correct but as unhelpful answers as possible.”
Ouch.
Related links:
Fear, revenge and ingenious tax deals — life on the top floor at Barclays – Guardian
Barclays tax dodge ‘nets £1bn a year ‘ – Sunday Times