The City of London published a report with PWC in December last year which looked at “The Total Tax Contribution of UK Financial Services”. Total government corporation tax receipts fell by 19.6% between 2007 and 2010, and receipts from the Financial Services sector by 54.0%.  

As the report indicates, over two thirds of the companies taking part in their 2010 study (68.2%) reported tax losses available to carry forward and use in the future at the end of the year. It is safe to say that all of these companies would have been banks.

Therefore when one bemoans Barclays paying 1% CT, it is worth noting that over a third of the companies in the City of London/PWC study actually received a corporation tax refund in the year – suddenly paying 1% doesn’t sound so bad does it!

In fact in 2010, the banks paid approximately only 4% of the total corporation tax gathered from the while financial services sector.

In short, women currently only make up about 12% of FTSE 100 boards and this figure is lower still for the FTSE 250 and beyond; yet girls consistently outperform boys in education; make up over half the population and are responsible for the vast majority of purchasing decisions in the UK. It is therefore clearly a nonsense to even for a second think that this under representation is due to a lack of talent.

This means that there is currently a clear market failure with a vast amount of talent going to waste. One example, of a vast library of examples, of markets not being the panacea, not allocating capital – human or monetary – in a true efficient fashion.

The solution proffered by Lord Davies is to place the onus of ownership of the problem with Chairmen and ask for investors to apply pressure for change. The report rightly I believe does not go down the quota route, instead seeking to tackle the root causes rather than symptoms of the problem.

The target of 25% of women on boards by 2015 is eminently achievable – requiring only one third of appointments to new positions to be women – this should encourage positive engagement in achieving it from Chairmen, investors and headhunters and avoid the common defensive approach taken by businesses to these reviews.

My one gripe was that during the launch of the report this morning, Lord Davies suggested that the threat of quotas will remain if adequate progress is not made. While it is probably sensible to take a carrot and stick approach, this threat seems a little empty given that he’d suggested only just before that he was dismissing quotas because they are not the answer to the right question. Surely even if progress is not made quotas would remain the wrong answer. I would instead suggest that other forms of sanctions for a lack of progress are thought about, preferably in the form of positive reinforcement for those achieving a target.

These reforms should be accompanied by other broader step changes which encourage companies to take a longer term view. Correction of these market failures should ensure shareholders incorporate issues such as a diverse company board into their valuations –creating a positive cycle whereby capital flows efficiently and companies are rewarded for taking a sustainable approach; this includes avoiding the danger of, middle aged, middle class, white male ‘group think’ in the company boardroom.

There are however, some glimmers of hope.

The Business Secretary Vince Cable has in recent months initiated a number of consultations into the various aspects of corporate governance that lead to economic short-termism; and Commissioner Barnier has indicated his desire to look at the same issues at an EU level. Added to this the Prime Minister tasked Lord Davies to investigate the barriers to women’s representation in the nation’s Boardrooms, and the creation of the Green Investment Bank will be going ahead.

I intend to cover some of these in more enlightening detail at a later date, but for now, I shall I shall say that:

Post “crisis” policy makers nationally and internationally are beginning to look past the initial resolution regimes and emergency measures, and turning their attention sharply to corporate governance. The major theme emanating from the EU Commission and UK Government is a desire to tackle the wide spread focus on short-termism, at the expense of paying attention to longer term fault lines. This is welcome and long overdue. It is to my mind crazy that there has been so little debate about the true underlying causes of the crisis, and how we should re-assess the way capitalism functions going forward. Instead a childish blame game has taken place, leaving little room for a grown up debate.

Most key figures within the investor world would accept, at least in private, that they did not do a good enough fiduciary job pre-crisis. Pension funds and institutional investors did not adequately fulfill their stewardship duties. While they were certainly not at fault for the crisis, their lack of engagement and active stewardship certainly allowed dangerous reckless practices to un-checked – as did the complicit actions of the ratings agencies, the ineptness of the regulators and the greed of the banks themselves.

To simply blame the investor community would however, be unfair. What needs assessing is the whole supply chain of capital, and the numerous conflicts of interest that lie therein. At present all actors are incentivised to favour short-term profits over long-term value return.

Currently the UK government are moving the deckchairs around the regulatory ship and are cutting left, right, centre and every other way possible, in order not to “burden future generations with debt”. However, by doing this they are diminishing the ability of future generations to continue to meet their own needs. The asset side of the UK balance sheet will be weaker and the burden of a lost generation will take another generation to set right.

The proper review of economic short-termism can help. If solutions are adopted correctly, then capital will more efficiently be allocated to where it will truly add long-term value to the economy. Externalities such as environmental damage will be accounted for, and capital markets can become, as they should be, the primary facilitators of a global green and just economy.

That said, I do not hold out much hope for radical change to arrive anytime soon. The Business Secretary has been effectively neutered over recent months; the Chancellor has shown no appetite for such a philosophical approach; and any real change would need to taken in conjunction with international partners. As the battle over the Green Investment Bank (to be discussed next) shows, the Treasury’s conservative mentality is winning out to the detriment of us all, and more important future generations.

So for the present, my optimism remains in check.

* EU wide research has indicated that optimism in the economic outlook has declined significantly more in the UK than in any other part of Europe or in the US (with the exception of Ireland).

Now the next few paragraphs are a little dry and stat heavy, but please bear with me.

While retail sales held reasonably steady in both December and January, this is unsurprising given that a large VAT rise was on the horizon. Today’s YouGov/Sunday Times poll adds further weight, indicating that the percentage of people thinking the economy is in a bad state is up to 80% – back to mid crisis 2008 levels when banks were falling all around us!

What’s most worrying for the government is that the driver of this low consumer confidence is the lack of any optimism that the economy is moving in the right direction. There is a near complete absence of a “feel good factor”. The figure for the “General economic situation over next 12 months” is down 7 points (28 points lower than this time last year) and that YouGov poll is gloomier still; recording that the proportion of people who think their financial situation will get better in the next twelve months is down to -56, equalling the worst level since the bank-bailout in September 2008.

To shed further gloomy light, the climate for major purchases is down a staggering 22 points – thirteen points lower than this time last year. The CBI’s latest Distributive Trades Survey demonstrates just this too. Its figures for the motor trades show the volume of sales falling on a year ago. Of the respondents, 2% said volumes rose, while 60% said they fell, giving a rounded balance of -59%, the weakest figure since July 2009 (-76%).

So, in depressing summary, people are significantly less optimistic about the economy than 12 months ago and are less willing to make significant purchases. This unsurprisingly correlates with a VAT increase arriving, inflation on the up; large cuts to public sector spending looming, unemployment rising and employment falling.

There are tough times to come – I only wish I could suggest that the pain was worth it!

ps. One other interesting figure in today’s YouGov poll is that 51% would like to the see the threshold for the top rate brought down to £100,000. While, the benefits of this are open to debate given the need to promote growth, it does indicate a public more willing than suggested by the government to consider extra tax rises as opposed to stringent cuts.

Before anyone starts, I know, I know, I can assure anyone and everyone that I’m not gloating. There is nothing to be triumphant about. The figures from the ONS published yesterday indicating that the UK economy shrank by 0.5% in the last quarter of 2010 are far from good news. While Osborne tried and quickly failed miserably to blame the “disappointing” figures on the snow, and while the 0.5% figure may be revised upwards in February in March, one simply can’t get away from the fact that is likely not a blip. The real cuts have yet to come, the VAT increase has only just been introduced – and as such should in theory have bolstered consumer spending in Q4.

What makes this even more politically damaging for the government (no need to prefix with ‘Conservative led’ or ‘coalition’) was that these figures came a day after outgoing CBI chief Richard Lambert made for him a very direct critique of the government’s failure to develop a growth strategy parralell to their fiscal retrenchment. Now Lambert is a man who chooses his words with great care and when he speaks his a voice worth listening to. It is fair to say that he and his CBI colleagues have had unlimited access to Government Ministers, have undoubtedly voiced their concerns about a lack of support for private sector growth in private while publicly voicing their support for the government’s deficit reduction plan (I wont pretend to agree with them here), and yet have demonstratably been ignored and are losing patience and faith.

Now I’m sure that a growth strategy of some form will be cobbled together before the Budget in March, however, by that time we will almost certainly be back in recession – if not officially confirmed by then. The real restraint on growth in Q4 was not the snow (the ONS indicate that the growth would have been 0% without the snow), but the lack of confidence. If individuals, businesses and the markets are not confident that growth is on the way, that in the medium term things will be ok, what incentive is their for investment or spending in the short term, and thus the long-term picture is forgotten all together. People and companies will naturally hold back spending and save their pennies. Now I agree that we all need to be saving more, the UK after all has the biggest savings gap in Europe, and pennies saved in pensions and the like are of course re-invested back in the economy, but hoarding for a rainy day is a different matter. It is the Government’s job to build the roof which allows businesses, citizens and the markets to feel secure and confident enough to look towards a bright future and invest and grow.