THE GOVERNMENT is today set to bow to City fury by issuing a clarification on its super-tax on bank bonuses, after being swamped by a deluge of queries from firms unsure if they will be hit by the damaging levy.
Confusion in the UK’s financial hub has been rising daily since last Wednesday’s pre-Budget Report, when chancellor Alistair Darling revealed plans to swipe 50 per cent off every discretionary bonus earmarked for bank staff before next April.
While the original parameters for the tax seemed rigid enough – the Treasury initially indicated it would affect only the 397 deposit-holding banks and building societies which currently hold a banking licence from the Financial Services Authority, as well as their subsidiaries – the City has been dismayed by ever-changing guidance from the government in the days following the announcement.
A statement from the government today will address concerns put to it in writing last week by the British Bankers’ Association (BBA). The group wants elucidation on the situation for non-banking entities owned by banks, such as fund managers and insurers, and for independent non-bank financial firms; more detail on how bonuses will be policed at UK branches or subsidiaries of foreign banks, for example where bonus payments are decided overseas; and how deferred share-based payments agreed under G20 proposals should be taxed.
BBA chief executive Angela Knight said the ambiguity had caused “extraordinary tensions” in the City, adding: “There was an assumption that if the government was going to do something, they would have worked it out first. It’s a mess.”
In addition to a panicked flurry of written and verbal enquiries from individual firms, the Treasury will today receive a missive from a consortium of eight leading independent stockbrokers, including Oriel Securities, Arden Partners, Panmure Gordon, Collins Stewart, Evolution, Numis, Cenkos and Altium, demanding clarification of their position.
Panmure Gordon chief executive Tim Linacre said the legislation had been “put together in a hurry and without proper reflection”.
“Firms like us have received no government bailout, so why should we not be allowed to compensate our staff appropriately, particularly when we have cut salaries across the board to weather the recession?” he said.
The news comes after it emerged Barclays Capital, Barclays’ star-performing investment banking division, had put on hold plans to boost base salaries to compensate for the dwindling bonus pool, pending more information from the Treasury.
Bob Wigley, the former Merrill Lynch banker who chaired the Wigley report into London’s competitiveness for London’s Mayor Boris Johnson, said: “London is on a knife edge and the situation is more precarious than at any point in my career.”
The City’s concerns came as shadow chancellor George Osborne said yesterday that he would not oppose the tax, despite Conservative London Mayor Boris Johnson warning it “could drive financial services overseas”.
But he offered a sliver of hope for the City by setting at rest fears this year’s tax could be repeated in 2011.
“This is a one-year only tax,” Osborne told the BBC.
“If you were permanently to impose some additional levy in the UK without trying to achieve
[international agreement]... then you would be running a serious risk with the competitiveness of the UK.”