Bankers fury at UK bonus supertax - City warns of damage of 50% levy
By Patrick Jenkins and Brooke Masters in London and Francesco Guerrera in New York
Copyright The Financial Times Limited 2009
Published: December 9 2009 20:15 | Last updated: December 9 2009 23:49
http://www.ft.com/cms/s/0/c29c2988-e4fc-11de-9a25-00144feab49a.html
Bankers in the City of London reacted with fury to UK government plans to levy an immediate 50 per cent supertax on banks’ bonus payouts, saying the move played into the hands of rival financial centres.
In his annual pre-Budget report, outlining government spending and revenue plans, Alistair Darling, the UK finance minister, announced a 50 per cent levy on discretionary bonus pay-outs to curb big bank bonuses that have provoked public anger. He said banks that had been battered by the financial crisis should be rebuilding their capital rather than paying out generous bonuses to their staff.
Mr Darling justified the exceptional levy by arguing that banks had generated excess profits as a direct, or indirect, result of the government’s bail-out of the banking system. The windfall tax will apply to all banks and building societies, including groups that operate in the UK under a European Union branch system.
The levy, to be paid by banks, will come on top of the marginal tax applied to individuals’ bonus pay-outs. “We hope it will be a disincentive for banks to pay bonuses,” said one Treasury official.
The UK Treasury estimates the move will raise £550m and affect 20,000 bankers, although some bankers suggest it could raise up to £4bn if – as seems likely – banks press ahead with bonus pay-outs regardless. The first £25,000 of bonuses will be exempt.
Bankers said the new tax – on top of the 50 per cent top rate of tax, due to be introduced in April, and an earlier squeeze on UK-resident non-domiciled individuals – could damage the City as a global financial centre.
“I can’t tell you how many people have called me from London asking to move,” a senior Wall Street banker said. “The question all the banks have now is: who the hell wants to be in the UK? Some businesses will definitely leave.”
One investment banking chief said the “contract between government and business is broken”, warning that up to 40 per cent of the City’s activities were “mobile” and would move overseas to more welcoming jurisdictions, such as Switzerland and the US.
Angela Knight, chief executive of the British Bankers Association, said: “Viewed from abroad, London may well look now like a significantly less attractive place to build a business.”
Stressing the importance of maintaining a level international playing field in financial regulation and taxation, John Varley, chief executive of Barclays, the British bank, said: “Getting that balance right is vitally important to supporting London’s position as a leading financial centre and the UK’s position in the global banking industry.”
But the bonus tax won a broad endorsement from Nicolas Sarkozy on Wednesday night, although the French president has yet to unveil any similar plans. In a piece co-written with Mr Brown in the Wall Street Journal, Mr Sarkozy said a one-off levy on 2009 bonuses deserved examination and ”should be considered a priority”.
The government’s move came as the Institute of International Finance, the leading industry lobbyist, said that co-ordinated global regulation was vital to real compensation reform.
Josef Ackermann, chairman of the IIF and chief executive of Deutsche Bank, said the industry should exercise restraint around bonuses and recognise that “the recent rise in profitability at many firms is attributable in part to exceptional support from governments”.
Rick Waugh, president of Scotiabank and chairman of the IIF committee that produced the report, said: “Using tax policy is a very blunt instrument. Be careful of unintended consequences.”
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