Banks whinge at windfall tax on bonuses

[David Guyatt]

The same old City blackmail is on offer again... let us do what we want or we'll leave the UK and set up elsewhere. Let them fuck off I say. And if the Board of RBS is threatening to resign to force the government to allow it to pay bonuses, then good sodding riddance to the bunch of useless greedy tossers.

Banks criticise windfall tax plan

British banking chiefs have reacted angrily to news the Treasury is considering a one-year windfall tax on bonuses paid to some UK-based bankers.



A scheme could be unveiled in Alistair Darling's pre-Budget report this week.

BBC business editor Robert Peston said taxing bankers rather than banks would not weaken the lenders and could raise several hundred million pounds.

Angela Knight from the British Bankers' Association (BBA) called such taxes "populist, political and penal".

She said such windfall taxes on bonuses would send the wrong message to the rest of the world about the UK's position as a banking centre.

"We have already seen quite a few companies shift out of the UK," the BBA's chief executive told the BBC.

"It might be popular to put very high taxes on a few [bankers], but we need to know how we would look internationally."

She added that one million jobs in the UK were supported by the banking industry.

'Serious damage'

Options in Mr Darling's pre-Budget report on Wednesday may include a super-tax on big bonus earners or a larger employers' National Insurance charge on banks.

“ It would not be great for the economic prospects of the UK if wealth-creating bankers and financial institutions emigrated to rival financial centres ”
Robert Peston, BBC business editor
Writing in his blog Robert Peston said: "The advantage of taxing these bonuses are first that they are likely to be pretty popular with more-or-less everyone apart from the bankers, if opinion polls are to be believed.

"But also, taxing bankers rather than banks would not weaken the banks themselves, at a time when they need to accumulate capital."

State-owned Royal Bank Scotland reportedly wants to pay a total of £1.5bn in bonuses to investment banking staff, and the board has threatened to quit if the government blocks the move.

Speaking on BBC One's Andrew Marr Show on Sunday, Mr Darling played down speculation about a windfall tax.

He said the government had a "veto" over bonuses at RBS but said the bank had "not come to us with any proposals at all at the moment because they don't yet know what the end of year position will be".

But he stressed: "These bonuses have to be reasonable and they have to be responsible and I think everyone has to accept that."

He added: "We are not going to be held to ransom by people who believe you can pay extraordinarily high bonuses without regard to what's going on."

But he also acknowledged that there had to be "sufficient incentives" to ensure RBS got back onto a "proper footing" and off the government's books.

'Gifted vast profits'

Robert Peston said if a windfall tax was imposed it would not just apply to UK banks such as Barclays, HSBC and Royal Bank of Scotland, but also to the British arms of overseas firms, such as Goldman Sachs, JP Morgan and Deutsche Bank.

"The fact is that we have gifted vast profits to the banks as a result of our actions," our correspondent quotes one minister as saying.

"If they were using those profits simply to strengthen themselves that would be okay. But what we can't accept, and what society can't accept, is that they are using those profits to pay enormous bonuses".

Our correspondent also said taxing the bankers may not be cost-free for the UK.

"It would not be great for the economic prospects of the UK if wealth-creating bankers and financial institutions emigrated to rival financial centres - for fear that the UK is becoming irredeemably hostile to them," he said.

“ When the banks start making profits again they should start paying taxes again ”
Shadow chancellor George Osborne
In the longer term, the prime minister and chancellor want a permanent levy on bank transactions, a so-called Tobin tax.

Shadow chancellor George Osborne, for the Conservatives, said he "wouldn't rule out" a windfall tax on bonuses, but would prefer reforms to ensure banks pay tax on future profits.

Liberal Democrat Treasury spokesman Vince Cable told the BBC "a special tax on the banks' profits" should last as long as the "banks continue to depend on taxpayer guarantees".

[Magda Hassan]

Couldn't agree more David. Why in blazes are they even getting a 'bonus' for running the business and the economy into the ground? They should make the tax retroactive while they're at it. About 40 years retroactive should do it. That is shock therapy I can believe in :nurse:

[David Guyatt]

http://www.bbc.co.uk/blogs/thereporters/robertpeston/

Will biffing bankers also biff Britain?



Robert Peston | 09:48 UK time, Monday, 7 December 2009 Comments (22)

With the exception of the Mayor of London, Boris Johnson, and a number of "Londonophiles" (probably not a real word, but you know what I mean), there is a wide perception that the UK economy became too dependent on the City and financial services.

Measuring that dependence is not enormously easy, however.

As a share of GDP, financial services contributes somewhere between 8% and 12% (according to which survey you believe).

More germanely perhaps, in the boom years before 2007 the City was directly responsible for about a third of all the UK's economic growth and a disproportionate share of tax revenues (whose best measure, perhaps, is the black hole that began to open in the public finances when a host of finance-related activities stopped yielding as much some two years ago).

But if the City became too puffed up and important to the UK's capacity to generate wealth, there are two ways of correcting that imbalance - which some might characterise as the "road to prosperity" and the "road to ruin".

The route to sustainable growth would be to build up other productive parts of the UK economy - manufacturing, the creative industries, tech, pharma and so on - as fast as possible.

Penury, of course, would stem from a rapid shrinkage in the City that was not counter-acted by growth elsewhere.

So the chancellor, Alistair Darling, will be acutely aware in calibrating his super-tax on investment bankers' bonuses that it should not lead to the wealth-generating City baby being thrown out with the stinking bathwater of excessive bonuses.

If top bankers were rational, they would not migrate to Zug or Hong Kong on the basis of a one-year super tax on their bonuses.

But a few will flee, because they are disgruntled by what they increasingly see as a hostile climate in the UK.

Which is why, as I mentioned in my note last night, the shadow chancellor George Osborne chose in the end not to take the initiative in proposing such a super-tax on bonuses, even though he has looked in detail at imposing a special levy on banks' distributed profits, or the combination of bonuses and dividends.

In fact George Osborne gave a very public nod in the direction of a bonus and dividend tax in his autumn speech to the Conservatives' annual conference.

And as a senior Tory said to me, he is not going to fall into the trap of publicly opposing such a super-tax as and when it is announced, because many traditional Tories are bonding with Labour voters in their visceral contempt for bankers and their bulging bonuses.

Osborne and Darling both believe that banks should not be paying big bonuses on the back of profits that they perceive as a gift from taxpayers (see my note "Banks face windfall tax" for more on this).

They want those profits retained in banks' balance sheets, to strengthen them.

That said - as the deputy governor of the Bank of England, Paul Tucker, has argued - there is a very strong case for banks (rather than bankers) to pay a levy (an annual one, probably) for the insurance we now know that they have to have from taxpayers: banks survived last autumn because taxpayers provided essential capital that the markets would not provide; banks should now pay for permanent access to this "capital-of-last-resort" facility.

But that's another story for another day. The government does indeed want such a charge to be imposed on banks, but won't go alone in introducing it. It is therefore swinging into international diplomacy mode to persuade the White House in particular that some kind of tax on financial transactions is good for the world.

For now what interests me is the behavioural impact of a one-off super-tax on bonuses.

As I've already mentioned, such bonuses will largely be paid in shares this year - for reasons of balance-sheet prudence ordained by the Financial Services Authority.

But if those bonuses are taxed at say 80%, it would be rational for the owners of the banks - the big investment institutions - to instruct banks' boards not to pay bonuses at all, because to do so would be to squander precious share capital.

In other words, such a super-tax might have the desired political effect of preventing bonuses from being paid.

But there might be almost no revenue from it for the Exchequer (even less than the few hundred million pounds expected by the Treasury).

Some would say, however, that the revenue implications are less important than the distributive and social justice of biffing bonuses.

Which may be so. But within any individual bank there'll be lots of individual shouts of "it's not fair".

Think about a typical trading desk at Goldman Sachs, for example: the British contingent, and the few others domiciled here for tax purposes, would pay the tax; but the non-domiciled Asians, Americans, French and Germans would not.

So if a bonus super-tax were introduced, we would be disproportionately hurting our own, as it were.