An answer to the bonus question?
10 Dec 09
Darling’s blow for bank bonuses is driven by political logic even if its economic logic can be questioned
Even if it had not been widely leaked to the media over the preceding weekend, the fact that Chancellor of the Exchequer Alistair Darling included a measure on bankers’ bonuses would have come as no surprise.
The fact that bankers appear to be toasting the return of the good times, just as the rest of us are being presented with the bill for bailing them out, has caused widespread anger.
So the only surprise was that Darling’s “super tax” is actually a tax on the banks and building societies themselves and not on the individual recipients of the bonuses. Banking employers will have to pay 50 per cent, as an extra levy, on all the discretionary bonus payments they make above a limit of £25,000 per employee. Rather than an attempt to claw back the bonuses, it’s more of an incentive not to pay them in the first place.
Will it work? Bankers are highly adept at minimising tax liabilities and their advisers will be working overtime to find ways to get round this latest obstacle. Meanwhile, the HR departments of international banks are apparently already fielding calls from senior employees looking for a transfer to Switzerland, the US, the Far East or anywhere else that Darling’s super tax cannot reach them.
Whether institutions themselves, as opposed to individual employees, would seriously consider relocation just because of a one-off windfall tax, is another question. But taken as a whole, hikes in income tax and national insurance, restrictions on pensions and now this measure targeted specifically at banking are making the UK less attractive to the highly paid individuals in senior positions in the financial world.
The trouble is, no government or opposition party that is serious about the next election can ignore the depth of public feeling against the institutions and people who are seen as responsible for the financial mess we are in. If the banks want to see the UK continue as an attractive environment for financial services, they are going to have work hard to convince the public that they are making a contribution to society and the economy. Simply threatening to leave if their bonus aspirations aren’t met looks like nothing more than blackmail.