New UK tax targets bank bonuses
LONDON - That grinding sound in London’s pricier precincts? Bankers gnashing their teeth.
The British government hit them where it hurts yesterday by announcing a steep tax on bonus pay, just in time to douse the holiday mood in the financial district.
Treasury chief Alistair Darling pulled populist strings in his pre-budget report to Parliament, urging bank directors to rebuild their financial strength and resume lending rather than spend money on bonus payments - which will now be subject to a one-time 50 percent tax.
“If they insist on paying substantial rewards, I am determined to claw money back for the taxpayer,’’ Darling said.
The tax will be paid by the banks, not the employees, reducing the pot of money available for performance-based bonuses.
Financial experts said the impact of the bonus tax on government revenue will be slight, and bankers warned that London would become less attractive to the financial services sector. The country’s banking association said business might go elsewhere under such conditions.
But the move still seemed shrewd to political analysts and pollsters, and it pleased some Britons who said they were happy to see bankers punished.
“This will be extremely popular with the British public,’’ said Robert Worcester, senior adviser to the Ipsos MORI polling firm. “They are mad, angry, at the banks. They feel the bankers have taken the taxpayers’ money and stuffed it into their own pockets.’’
Bankers find themselves pawns in a political passion play as the fading Labour Party government seeks to revive its fortune ahead of a general election by capitalizing on public anger at people getting six or seven figure bonuses from shaky institutions that received taxpayer bailouts.
The bonus plan announcement came as Darling acknowledged that the economy will shrink more this year than previously predicted and also hiked government borrowing forecasts.
The decision may be popular, but it marks the end of the successful “New Labour’’ political project that saw the Labour Party end its longstanding feud with the monied classes when it won a landslide election in 1997, said Andrew Russell, a University of Manchester professor.
The new tax sets Britain on a different road than the United States, where early attempts to impose a similar tax have fallen by the wayside.
The US House voted in March to impose a 90 percent tax on bonuses to executives of companies that received at least $5 billion in federal bailout money, but a similar effort in the Senate faltered.