E Cable yesterday confirmed the government is considering resurrecting Labour’s 50 per cent bank bonus tax.
George Osborne is coming under intense pressure from his coalition partners to send a tough message to the City, with Cable thought to be broadly in favour of reintroducing the tax.
The business secretary told City A.M.: “The tax has always been an option. There is a clear coalition commitment to make sure there is not an excessive bonus culture.
“We hope the banks will also show restraint – in this economic climate we need to make sure there are not disproportionate bonuses being handed out.”
However, it is understood the chancellor is determined not to undermine the government’s improved relations with the banks, especially with an agreement on lending commitments that would guarantee funds to UK businesses said to be close.
Any bonus tax would come on top of a bank balance sheet levy that will extract £2.5bn a year. Osborne is said to be resisting pressure to increase the amount raised by the levy even further.
No final decision will be made on the levy until after the Committee of European Bank Supervisors (CEBS) announces its new remuneration rules this week. It is expected to bring in a raft of draconian measures, including restricting the cash part of bonuses to just 20 per cent and insisting 60 per cent must be deferred.
Critics say the complex new rules would make a bonus levy largely symbolic. British Bankers’ Association (BBA) chief executive Angela Knight said: “We are looking at a wildly different year end to last year. The majority of bonuses will be locked away, performance related and paid in shares. I’m not sure how you would apply the tax now. If this is being seriously considered I don’t think the details have been thought through.”
The total bonus pot is also expected to be sharply down on last year, limiting the amount the levy would bring in. Earlier this year the Centre for Economics and Business Research (CEBR) estimated the total bonus pot would be around £7bn – down from £10bn the year before – but others are now believed to think the eventual sum could be much less.
A spokesman for Osborne said no decisions have been made yet and the government is concentrating on trying to win an international accord on bank taxation.