views

CITY SLAMS PLANS FOR WINDFALL TAX

THELABOUR government is facing an increasingly furious City backlash over plans to slap a punishing windfall tax on bank bonuses, with senior figures warning that the policy could prove the last straw for the UK&rsquo;s ability to retain senior banking talent.<br /><br />Chancellor Alistair Darling is expected to unveil the tax bombshell at tomorrow&rsquo;s Pre-Budget Report (PBR), as part of a raft of measures designed to pander to populist anger towards the banks.The measures, which would only raise a few hundred million pounds, would have almost no effect on the budget deficit, which is set to hit &pound;180bn this year.<br /><br />City A.M. understands the most likely scenario will be a temporary year-long levy on larger banks&rsquo; bonus pools, rather than a charge on individual payouts over a certain limit, which some yesterday said would be &ldquo;discriminatory&rdquo; and subject to challenge under human rights law.<br /><br />But the City&rsquo;s primary concern yesterday was the effect any windfall tax on bonuses would have on its global competitiveness, which has already taken a hit from the crackdown on non-doms, a new 50p top rate of income tax and a cut in pension tax relief for high earners. <br /><br />Higher national insurance contributions, new rules on bonuses, a planned European attack on hedge funds and private equity houses, tighter rules on skilled migrants and new rules governing compensation have also caused alarm in the Square Mile.<br /><br />Speaking at the Wall Street Journal Future of Finance Initiative yesterday, Darling defended plans to clamp down on bonuses. <br /><br />He said: &ldquo;I can understand why some people say this is all political, but people need to really understand that there would not be a bank standing today if the taxpayer had not had to reach into their pockets. <br /><br />&ldquo;What we have been seeing is people getting bonuses of the sort of magnitude I couldn&rsquo;t dream of. The industry as a whole does need to show a degree of restraint.<br /><br />And he went on to address public anger over bonuses, telling bankers &ldquo;if you can&rsquo;t look a neighbour in the eye and justify what you&rsquo;re doing, there&rsquo;s a problem.&rdquo;<br /><br />But Stuart Fraser, the City of London corporation&rsquo;s policy chairman, said: &ldquo;If you&rsquo;re a premier league investment banker looking around the world, you now have some serious questions over the UK. The message we&rsquo;re sending abroad is that the UK doesn&rsquo;t like high earners.&rdquo;<br /><br />Boris Johnson&rsquo;s spokesman said the Mayor believes bankers have a duty to show social responsibility and self-restraint, but that he &ldquo;is opposed in principle to one-off politically vindictive, short term measures.&rdquo;<br /><br />And Jon Terry, head of reward at PricewaterhouseCoopers, warned a windfall tax could prove to be &ldquo;the straw that breaks the camel&rsquo;s back&rdquo; in terms of the City&rsquo;s competitiveness.<br /><br />Meanwhile Gordon Brown yesterday outlined &pound;12bn of public sector efficiency savings over four years and plans to &ldquo;name and shame&rdquo; highly-paid public sector fat cats. The cuts &ndash; &pound;3bn more than planned in the Budget &ndash; will come partly from streamlining central government, axeing the costly NHS IT upgrade programme and relocating departments out of London. <br /><br />The Prime Minister said new public sector salaries above &pound;150,000 would have to be approved by the Treasury, while the roster of civil servants currently earning that amount would be made publicly available.<br /><br />The Tories responded by announcing plans for a Public Services Productivity Advisory Board to increase accountability in the public sector.<br />