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’s ability to retain senior banking talent.
Chancellor Alistair Darling is expected to unveil the tax bombshell at tomorrow’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 £180bn this year.
City A.M. understands the most likely scenario will be a temporary year-long levy on larger banks’ bonus pools, rather than a charge on individual payouts over a certain limit, which some yesterday said would be “discriminatory” and subject to challenge under human rights law.
But the City’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.
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.
Speaking at the Wall Street Journal Future of Finance Initiative yesterday, Darling defended plans to clamp down on bonuses.
He said: “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.
“What we have been seeing is people getting bonuses of the sort of magnitude I couldn’t dream of. The industry as a whole does need to show a degree of restraint.
And he went on to address public anger over bonuses, telling bankers “if you can’t look a neighbour in the eye and justify what you’re doing, there’s a problem.”
But Stuart Fraser, the City of London corporation’s policy chairman, said: “If you’re a premier league investment banker looking around the world, you now have some serious questions over the UK. The message we’re sending abroad is that the UK doesn’t like high earners.”
Boris Johnson’s spokesman said the Mayor believes bankers have a duty to show social responsibility and self-restraint, but that he “is opposed in principle to one-off politically vindictive, short term measures.”
And Jon Terry, head of reward at PricewaterhouseCoopers, warned a windfall tax could prove to be “the straw that breaks the camel’s back” in terms of the City’s competitiveness.
Meanwhile Gordon Brown yesterday outlined £12bn of public sector efficiency savings over four years and plans to “name and shame” highly-paid public sector fat cats. The cuts – £3bn more than planned in the Budget – will come partly from streamlining central government, axeing the costly NHS IT upgrade programme and relocating departments out of London.
The Prime Minister said new public sector salaries above £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.
The Tories responded by announcing plans for a Public Services Productivity Advisory Board to increase accountability in the public sector.