Wednesday, 13 May 2009
The FSCS, the consumer’s compensation scheme, was hijacked on the eve of the Tory conference last year as a means of brushing under the carpet £14bn worth of Bradford & Bingley’s questionable assets and turning them into a debt owed to the government at some future date. Since then, we have seen Icelandic meltdowns and goodness knows what else; much of which has been covered by the political fig leaf of the compensation scheme.
Contary to popular misconception, the FSCS is not some big ‘fund’ in the sky that springs into action when problems occur; it is a borrowing limit of just over £4bn per year that subsequently can be recovered from the Financial Services industry. Over the last few years the FSCS has paid claims across all sectors of between £80m and £120m annually. Now it faces a £14bn government recovery claim and more besides.
The scheme was designed to draw first from the industry sector that caused the claim and then swiftly move on to other parts of the Financial Services industry when that capacity is all used up. Clearly, the banks are a bit hard up at the moment and £14bn is still a lot of money.
So, to recap, the government has loaned the FSCS - a government agency - £14bn so that the FSCS can pay the government back again later. If the FSCS were to levy said amount from the banks exclusively – or even mainly – then, as a major shareholder in several banks, the government would actually be charging itself… at least twice. Also, those banks still in private hands could be tipped into public ownership in pretty short order, unless all banks are allowed to make borrowing and other charges a lot more expensive; which the government is very much against.
General Insurance is, therefore, definitely in the frame. Insurers can harden their premiums and decrease commissions to cover their additional contributions, whilst brokers, with no way of clawing anything back from the customer/taxpayer, will necessarily all go bust and, thus, qualify for government assistance.
Consequently, if GI is to pick up the pieces, then the only fair method is through taxation… IPT perhaps… which is, after all, an Ad Valorem tax (VAT in Latin), or so it was described by Ken Clarke when he first announced it in 1993.
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