By Alex Brummer, City Editor
Last updated at 8:55 AM on 24th June 2010

George Osborne’s debut Budget is not one that is likely to send City financiers scuttling off to Geneva. The loud voices raised against a debilitating jump in Capital Gains Tax look to have done the trick.

Similarly, despite the populist attacks on the banks, the wholesale levy on balance sheets, initially set at 0.04pc (but due to rise to 0.07pc), is being viewed as a let-off.

Just to add to the better mood in the Square Mile, the initial reforms of corporation tax – which pays for the cut in the headline rate by modestly shaving the capital allowances – also is viewed with some relief.

Good mood: George Osborne’s Budget was met by City financiers with some relief

The City was less than enthusiastic at any attempt by the Chancellorto remove the favourable tax treatment of debt which would have been ablow to private equity and M&A.

Yet there is something disquieting about the failure to grapple, for the moment, with greed and false idols in the Square Mile.

There was something disquieting about the rush by seniorfinanciers including Terry Smith of Collins Stewart and Tullett Prebonand Tim Howkins of IG Index to sell down their holdings ahead of thebudget.

It gave the impression that paying taxes at higher rates is only for the little people.

Indeed, the fact that HMRC has to spend so much effort trackingdown tax avoidance and closing off loopholes, as part of its dailywork, points to less that patriotic attitudes by some people who liveand work in Britain.

Hopefully, the decision to lift CGT to a modest 28pc (wellbelow the top rate of income tax at 50pc) will slow the unseemly rushto sell. 

As for the banks they would be unwise to preenthemselves too much. A far bigger threat, feared in the boardroom of84pc government owned Royal Bank of Scotland among others, is Osborne’sBanking Commission.

If it should decide that some further divestment of is required that could scupper recovery plans.

Moreover, the ‘financial activities tax’ – examined by the International Monetary Fund – is by no means dead as yet.

It could still come back and haunt the banks as soon as the Toronto G8 and G20 the coming weekend.

Despite these lingering threats the banks are taking the budget- which also cut the potential cost of the government’s financialrescue to just 2bn – as more benign than it should have been.

There could be method in the coalition’s madness.

With the public sector set to take the brunt of the hurt overthe lifetime of this Parliament, the private sector is going to have toplay a big role in recovery.

For all its faults during the credit crunch, when it becamedrunk on toxic debt, income from the City will be a crucial in keepingoutput in the black.

So clobbering the Square Mile too hard now would make little sense.

Rate dissent

How robust is the Osborne-King deal on monetary policy?

The Chancellor presumably hopes he has bought Bank of Englandsupport for low interest rates with his assault on the budget deficit.

It won’t hurt either that the governor Mervyn King has been made supreme master of financial stability.

But King and the Chancellor should not take the independent Monetary Policy Committee for granted.

Andrew Sentance has become the voice of dissent on the MPCnoting that growth has started to take off and the persistence ofinflation raises questions about how much spare capacity in the economyis really left.

Sentance believes that, as in Australia, Canada and one or twoother countries, it may be time to withdraw the monetary stimulus.

So far Sentance holds a minority view and the dovish tendencyis in the ascendency. MPC members clearly fear that the sovereign debtcrisis could pose a significant threat to stability and demand in theUK. 

The longer that prices run ahead of the government’s 2pctarget the harder it will be to hold bank rate at 0.5pc through to theend of the year.

Phoenix arising

Have the 6.5m policyholders and 69bn of assets in the Phoenix Group, the former Pearl insurance, finally found a safe haven?

Under the stewardship of corporate turnaround specialist Ron Sandlera settlement has been reached with the bondholders and a return to apremium quotation on the London Stock exchange has been approved.

In short order it could become a FTSE100 company.

The next objective will be to shake pizza-king Hugh Osmond andhis associates from the share register along with the American hedgefund that are currently dominant.

Sandler is keen to become the ‘ consolidator’ of choice for the industry.

Whether that will ever mean decent returns for neglected policyholders is an open question.

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