Should the rich pay more for the same services – and higher fines too?

Patrick Collinson in The Guardian

The government is considering a sliding scale of probate fees, an idea that could apply elsewhere


 

In Finland, speeding fines are based on the offender’s income. Photograph: Danny Lawson/PA

There was outrage this week when the government said it was pressing ahead with a new approach to charging for its role in probate (the legal process for settling your financial affairs on death). Instead of the current £155 flat fee for the paperwork, the government is considering a sliding scale of probate fees based on the value of the estate, from zero to £6,000 – even though the cost of the paperwork is virtually the same.

The Law Society – representing the solicitors who do probate work – says it’s unfair. “The cost to the courts for providing a grant of probate does not change whether the size of the estate is £10,000 or £1m.” It argues that this is no longer a fee but a “stealth” increase in inheritance tax.

Much steeper inheritance taxes are perfectly fine, but this back-door attempt to raise IHT will strike even soak-the-rich types as a bit odd. What next? Should a homebuyer pay a higher fee for local authority searches depending on the sale price of the property? Should your TV licence be based on your income? Should you pay a bigger fine for not having a TV licence, if you have an above-average income?

Actually, on the last one, plenty of countries do go down that path. In Finland – to which we must now genuflect on all things progressive – there is a system called “day fines”. If you commit a misdemeanour that may result in a fine issued by a public authority – such as a speeding ticket – then the size of the penalty is based on the person’s income.

In 2015, a millionaire in Finland was hit with a €54,000 (£4,700) fine for speeding, while in 2002 a Nokia executive received a €116,000 fine for speeding on his Harley Davidson motorcycle, and in 2001 a driver was punished with a €35,300 fine for going through a red light.

Behind the idea of bigger fines for the rich is the fear that they can “purchase” the right to commit offences, because the relative cost to them is immaterial. Anybody who speeds, or evades their TV licence, or who goes through a red light, is equally blameworthy, but the richer person is less deterred from repeating the offence because the fine is relatively meaningless.

Of course, this is all about misdemeanours. Surely there’s no read-across to pure government services? But there is: your family might produce the same amount of rubbish as a similar family on the other side of town, but you are already effectively paying a much higher price (through your council tax) for it to be collected if you live in a pricier house.

There may be more merit in a sliding scale for probate fees than first thought – and a very good case for making speeding and other fines payable according to income.

Criminal bankers have brazenly milked the system. Let’s change it

Will Hutton in The Guardian

 

 Traders colluded in online chatrooms to time the buying and selling of huge amounts of currency. Photograph: Ruben Sprich/REUTERS

The world’s biggest banks had been steeling themselves for months before the US Department of Justice’s rulings on manipulation in the foreign exchange markets. Last week’s announcement was, if anything, less tough than expected; £3.7bn of fines were levied on top of those announced last autumn, to bring the grand total to an astounding £6.3bn. Crucially, the banks also admitted that what they had done was criminal. The US attorney general, Loretta Lynch, declared that foreign exchange traders had exhibited“breathtaking flagrancy” in setting up a group they called “the cartel” to manipulate the market between 2007 and the end of 2013. The fine was “commensurate with the pervasive harm done. And it should deter competitors in the future from chasing profits without regard to fairness, to the law, or to the public welfare”.


Put bluntly, the world’s most prestigious banks had brazenly and systematically ripped off their clients. It was the crime of the decade. Yet the markets had been expecting worse. Only a month ago, Deutsche Bank had paid a record £1.6bn fine for manipulating and rigging prices in the currency and money markets. If this was the benchmark, thought the markets, the fines for other banks would be higher. As it was, £3.7bn seemed almost modest and the share prices of Barclays, RBS, Citigroup and JP Morgan rose sharply in relief.

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The hope in the banking world is that the worst may be over. The combination of modestly increased regulation, stronger internal compliance and clawing back pay and bonuses if there has been malpractice – together with genuine determination at board level to root out criminal practice in dealing rooms – should begin to make a difference.


Yet will it be enough? Our grandparents, less in hock to today’s ruling doctrines – that markets can be presumed to be infallible and egoism is always beneficial – were wiser about how to organise markets than today’s economists and regulators. It is striking, despite record fines and the sacking of the Bank of England’s head of foreign exchange operations, who knew about the collusion but never drew it to the authority’s attention (on the grounds that whistleblowing was not part of his duties), that the British approach is still softly, softly.


Minouche Shafik, deputy governor of the Bank of England, expressed her horror at the casual “misconduct” among traders and the language they used to justify what they did in a speech to the London School of Economics last autumn. (Shafik is in charge of the fair and effective market review that will propose changes to the foreign exchange markets.) She conceded that no one can talk any more of a few bad apples – the barrel is rotten. But while recognising that deep change was necessary, her proposed areas for potential remedial action are largely technical. Tonally, her comments reminded me of the infamous Bischoff report into the banking system in 2008/9, which, despite the narrowly averted banking collapse, recommended as little as possible should be done to reform the City.


In fairness, Shafik spoke before last week’s admissions of criminality. The US Justice Department has raised the stakes. What everyone has to confront is that the banks have been party to an organised, global criminal conspiracy to defraud their clients. Traders colluded in secret online chatrooms to time the buying and selling of huge amounts of foreign currency to benefit each other. As one said: “If you ain’t cheating, you ain’t trying.” The entire framework, and the economic philosophy that supported it, has been found wanting.


In terms of structure, the foreign exchange markets are the closest to a Thatcherite nirvana that has ever been devised. Governments do not manage rates to comply with an internationally agreed system, as they did after the war. The price of a pivotal financial asset is determined wholly by private supply and demand. The market makes its rules. There has been close to zero public regulation. Banks buy and sell on their account freely and for their clients. Conflicts of interest abound. The pursuit of profit is the only hallowed value.


The argument in favour of this is that it is vital for the promotion of world trade and prosperity, but daily turnover on the foreign exchange markets dwarfs the volume of world trade. To paraphrase Adair Turner when chair of the now-abolished Financial Services Authority, much of this turnover is plainly neither socially useful nor promotes public welfare. It does, however, enrich those who trade in it and, as we see, criminally.


For 30 years, the doctrine has been that state involvement would be counterproductive. Modern companies, of which banks are a sub-set, have been encouraged to define themselves not as organisations delivering economic and social good, but as profit-making machines for anonymous, tourist shareholders. Managers did not question their trading teams too hard: they knew how important the profit was to their bonuses and to the bank. As for the teams, they were prepared to trade themselves – moving from bank to bank, depending on whoever paid them best. They were not an integral part of great organisation: they were, and are, boys on the make.


In a letter to all the CEOs of Fortune 500 companies, Larry Fink, head of BlackRock Asset Management, the biggest in the world, deplored the short-term financial priorities of modern corporations, which he said had lost their way and urged a refocusing. What has happened in our currency dealing rooms is part of that story. Addressing it requires a new deal between shareholders, companies and their workforces, and between the public and the private. We need a reshaping of company law and the way companies are owned so that managers pursue less fevered, short-term amoral strategies. And we need an acceptance that in market after market there is a co-dependence between state and business.


Rather than imposing swingeing fines after the event, the state has an obligation to create, with the banks, a financial architecture in which such practices cannot happen. Conflicts of interest and opportunities for price rigging should be outlawed. Criminal currency traders should be prosecuted All bonuses should be capable of being clawed back. Currency trading should be licensed on organised, accountable exchanges.


Those rules and systems that the world’s free marketeers considered so antediluvian turn out to be wise and friendly to honest-to-god businesses. Mark Carney’s Bank of England has been quietly re-regulating mortgage finance, abandoning the free-market zealotry of the 1980s and 1990s. It should do the same in the foreign exchange markets. Our grandparents were not so stupid after all.

If we're going to cry foul over Fifa, then we should at least hold our banks to the same standard

Mary Dejevsky in The Independent

Modern life provides many opportunities for bafflement, but the continuing capacity of the British to regard themselves collectively as paragons of public virtue never ceases to amaze.

This week we have seen the lid taken off two prominent areas of our national life – banking (again) and football – to reveal something quite unpleasant beneath. But the response has been – in the first case – to insist yet again on “just a few bad apples” and – in the second – to attack a report that was so misguided as to exonerate Qatar and Russia over their World Cup bids, while fingering England (how dare they?) for being economical with its observance of the rules.

I remember vividly my response to the first reports that bankers in the City of London were suspected of fiddling the Libor rate. I was horrified. Was Libor – the London inter-bank offered rate – not the benchmark for international banking? The standard-setter? If Libor was being manipulated, what did this say about the soundness of UK banking generally? How and why had anyone been able to cook the books for so long? With something as fundamental as Libor, why were there no fail-safe mechanisms for checking?

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The two questions that I asked most often, though, were the most basic. How come the only remedies being mooted were fines on the institutions – fines that would ultimately be paid to a large extent by you and me, the taxpayers, seeing as how we had rescued these banks by taking them into public ownership? And even more basically, why had the reputation of the City of London not been tarnished beyond recall? The Prime Minister and the Chancellor were still, it seemed, lavishing time and energy trying to secure some arrangement with Brussels that would minimise the damage to the City from tighter eurozone regulation. Frankly, why bother? Let City banking lie on the bed it has made.

It then transpired that not only Libor was being rigged, but the foreign-exchange market, too, with gung-ho bankers exchanging jocular emails about what they were doing. And not only doing, but getting away with, until last year. What was the price for such cynical profiteering? More fines on the institutions, no doubt plea-bargained down, and again likely to be paid, one way or another, by you and me. Is it not passing strange that the offending emails could be cited verbatim, but that those who sent them remain unnamed? Even stranger, that there are apparently no criminal charges yet being brought? Oh yes, the Serious Fraud Office is apparently looking into that possibility, but such a tentative response hardly inspires confidence.

 

As a journalist, I find it hard to believe that hacking someone’s voicemail warrants something akin to a show trial and a prison sentence, but swindling the country out of millions of pounds isn’t treated as a crime – at least not one that anyone shows much eagerness to prosecute. Are there frauds that are too big or too brazen to punish? Even the reputational damage seems limited. Far from being diverted to Frankfurt or New York, the money, it seems, continues to roll in. Or is this perhaps a reflection of the sort of money that now flows through London; a quality of money and banking that deserve each other? 

And so to the “national game”. When Fifa published its report into allegations of corruption during the most recent bidding process, and essentially absolved Qatar and Russia, the initial reaction here in Britain seemed to veer between disbelief and resignation. After all, Qatar’s bid had succeeded despite summer temperatures that are now requiring the whole global football schedule for 2022 to be rewritten, while questions over Russia’s capacity for bad behaviour are hardly new. When it emerged, however, that Fifa had put someone in the dock for rule-bending, and that someone was England, the response was apoplectic. Righteous indignation hardly begins to describe it.

The fury was palpable, with MPs talking about a “whitewash” and the English FA categorically rejecting charges that it had tried to “curry favour” with the former Fifa vice-president, Jack Warner, despite a list of actions that at least permitted such an interpretation. The former English FA chairman, Lord Triesman, accepted the findings as “legitimate” and “embarrassing”, while also insisting that the report reflected Fifa’s “dislike” of England.

Already turbid waters were further muddied when the US lawyer, Michael Garcia, who actually conducted the inquiry, complained that the report contained “incomplete and erroneous representations”. There is now pressure for his findings to be released in their entirety. But the self-justifying anger the report prompted in London leaves a sour taste and suggests a verb that can be conjugated “I entertain; you offer encouragement; he/she/it gives bribes”.

One consequence could be that the next time the UK casts aspersions on the probity of an Arab state or Russia, the polite response will cite pots and kettles.

What I fail to understand is why the same seems not to apply to the City of London and its banks.