POLITICS
15/02/2016 08:18 GMT | Updated 15/02/2016 08:59 GMT

HSBC Warned By John McDonnell It Does Not Have A 'Blank Cheque' After Bank Commits To London

John McDonnell has warned HSBC it can not have "blank cheque" when it comes to doing business in Britain, after the bank announced it would not be moving its headquarters abroad.

The bank had been considering quitting London amid concerns about stricter regulations, including the Bank Levy introduced in 2010 which targeted HSBC's global balance sheet.

However in his July Budget, George Osborne announced the Levy would be changed to apply just to a bank's domestic UK operation.

The bank's chairman, Douglas Flint, said Osborne was "well aware of our view" when it came to the Bank Levy but insisted "no pressure" had been put on the government.

john mcdonnell

McDonnell said today: "It is welcome news to those HSBC staff who were concerned about their jobs. However, the bank's senior management has to now also reassure those taxpayers who would have read that the bank is not paying a significant amount in corporation tax in the UK, while successfully lobbying the chancellor to cut the Bank Levy.

"Senior bankers at HSBC can't have it both ways. Doing business in the UK comes with certain responsibilities and not a blank cheque when it comes to rights and regulations.

"We have seen on numerous occasions such as on the Bank Levy that the chancellor is happy to take his orders from the banks. But we simply can't afford this light touch approach to the financial sector at such a sensitive time in the global economy, as it could be seen as a green light for a return to 2008."

Downing Street this morning ducked questions as to whether it had caved into threats by HSBC to quit the UK unless the Bank Levy rate was lowered.

The prime minister's spokesperson said: "The chancellor, in last summer's budget, when he announced the changes, set out very clearly that the Levy was introduced to raise revenue, to stabilise bank balance sheets. It served its purpose, it worked. But it risked doing harm, if left unchanged."

"You would expect the government to look at measures, look what they are intended to achieve and make sure they are continuing to serve their purpose. The Bank Levy served its purpose."

HSBC said the Bank Levy cost it £700 in 2014. Osborne's decision to gradually reduce the Bank Levy from 0.21% to 0.10% by January 2021 was described by the independent Institute for Fiscal Studies think-tank as a "significant giveaway, a large slice to HSBC".

hsbc canary wharf

Speaking to BBC Radio 4's Today programme this morning, Flint, said the regulatory regime for banks "hasn't been softened" under Osborne and denied HSBC had put pressure on the chancellor to water-down regulation.

"We had no negotiation with the government. The government was well aware of our view, and indeed the view of many other people who commented upon it, but there certainly was no pressure put, or negotiation," he said.

HSBC's decision to remain in the UK comes as Sir John, the Independent Banking Commission chair, warned British banks were still not protected enough from future "economic disasters".

McDonnell said: "On a day when Sir John Vickers is warning that many of the reforms he proposed to prevent another banking crisis have been watered-down, it does seem whatever the banks want under George Osborne, they tend to get from the bankers’ chancellor."

The Bank of England has proposed banks have, at the most, a 2.5% extra capital in reserve compared to loans. But Sir John said a "much thicker" 3% buffer was needed.

“In my view what they proposed was disappointing; was unambitious,” he told Today. "It would give us better insurance, better shock absorption if - and more likely when - the next crisis hits."

"I would say the cost of beefing this up, having a thicker cushion, is really very, very low compared with the benefit, which is better insurance against these economic disasters, which can happen."