IT is funny how quickly moods change. It was not that long ago that the G20, courtesy of Gordon Brown’s spin machine, was being hailed as a quasi-mythical authority that was about to solve all of the world’s economic problems. There would be a new era of enlightened global coordination, we were told – in fact, it was all about the g-word: a global bank tax, global regulation, global fiscal stimuli, globally low interest rates and universal quantitative easing. This G20 love-fest climaxed in a gathering at the Excel Centre in the Docklands, where breathless, uncritical broadcasters hailed Brown’s supposed brilliance and almost anointed him (as well, of course, as Barack Obama) as the world’s saviour. The next day’s headlines were all about the trillions of dollars that the world had agreed to spend on the IMF and to stave off another Great Depression.
As I wrote at the time, it was all hyped-up nonsense. The figures and claims themselves were a combination of double-counting and propaganda. The idea of a cartel of nation-states uniting to prevent dissent or competition on tax, regulation and spending was spookily undemocratic. The supposed commitment to “expansionary fiscal policy” was merely an excuse for governments that had already lost control to pretend that they were following international best practice. These huge deficits have been singularly ineffective in boosting growth and have pushed governments’ balance sheets beyond breaking point, laying the grounds for another, even more damaging crisis.
But the most important reason why all of this G20 adulation was never going to last was because the organisation is fortunately completely powerless. It costs nothing for politicians to sign grandiose declarations – but policies still need to be discussed and voted through at a national level, which is why there luckily never was any chance of a global bank tax.
We are now firmly back on planet earth. The G20 officially scrapped plans for a universal global bank tax on Saturday, giving countries plenty of wiggle room. Opposition from Japan, Canada and Brazil – whose banks needed no aid – killed the idea. Several ministers signalled that a lengthy phase-in for increasing capital requirements was now inevitable. This is sensible – but yet again contradicts previous statements. The G20 even said that public finances had to be brought under control in a way that was tailor-made for each country's needs. National and local are the new global, it seems.
All of which poses a real challenge to George Osborne. He will be unveiling a new tax on banks on 22 June – yet many other countries will not now be doing so. Combined with the looming hike in capital gains tax, the City’s attractiveness is about to take a knock. So any tax that Osborne does introduce must be carefully controlled and limited. A levy paid by the industry into a resolution fund that provides temporary financing to allow an orderly wind-down of large firms in the case of failure would be a good, positive move. It would make it clear that no bank is too big to fail, reinject the fear of failure into the system and create a system to control the collateral damage from a major financial bankruptcy. But any other kind of tax – especially one aimed at grabbing populist headlines – would be a disaster and merely incentivise London-based firms to move elsewhere. Let us hope Osborne gets it right.