My advice for Burnham’s first budget? Hit the banks – and hit them hard | Polly Toynbee
Real-world example for IB, A-Level, AP and IGCSE Economics essays: Financial markets and banks, Fiscal policy, Government debt and deficits
What happened
A comment piece argues that in Burnham's first budget banks should be taxed heavily, on the grounds that bankers have barely repaid the billions the 2008 crisis cost the country.
The economics
The article treats the 2008 banking crisis as a case of financial-sector risk spilling over and being borne by public finances, which then frames a fiscal policy choice: taxing banks to recover part of the rescue cost and raise revenue against debt pressure. Students can trace a chain from bank risk-taking to public bailouts, rising government debt, and bank levies in the budget.
Evaluation
A limitation is that the tax may be passed on to customers or shareholders, or push banks to relocate activity, eroding the tax base; and the piece argues from 'vibes' rather than specifying rates or revenue, so the debt impact cannot be quantified.
Practice question
Using this example, discuss the trade-off a government faces between taxing banks to reduce the fiscal deficit and preserving financial stability.
Where it fits in the syllabus
- Financial markets and banks: How banks, bond and stock markets fund the economy, and what swings in asset prices do.
- Fiscal policy: The government changes spending and taxation to influence aggregate demand and economic activity.
- Government debt and deficits: Spending above tax revenue creates a deficit; deficits add up to debt, which can raise interest rates or crowd out private investment.
- IB Economics: Fiscal and Monetary Policy
- A-Level Economics: Economic Policy
- AP Macroeconomics: Financial Sector, National Income and Price Determination, Long-Run Consequences of Stabilisation Policies
- IGCSE Economics: Government Macroeconomic Policy