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A bonus super-tax

Robert Peston | 22:44 UK time, Sunday, 6 December 2009

The windfall that the chancellor wants to capture is bankers' bonuses, as I said in my last note.

Alistair DarlingSo what he has in mind - and what may be announced in Wednesday's pre-Budget report - is not a classic windfall tax, which would be levied on banks' profits.

Instead it would be a super-tax on bonuses over a certain level paid to British-based investment bankers.

The advantage of taxing these bonuses are first that they are likely to be pretty popular with more-or-less everyone apart from the bankers, if opinion polls are to be believed.

But also, as I mentioned in my previous note, taxing bankers rather than banks would not weaken the banks themselves, at a time when they need to accumulate capital.

That said, taxing the bankers may not be cost-free for the UK.

The UK may have become excessively dependent on the City and financial services, but it would not be great for the economic prospects of the UK if wealth-creating bankers and financial institutions emigrated to rival financial centres - for fear that the UK is becoming irredeemably hostile to them.

Which is why George Osborne, the shadow chancellor, did not pre-empt the government by announcing that a Tory administration would impose such a super-tax - although he did consider announcing an intention to impose a one-off special tax on both big bonuses and dividends.

That said if the government announces such a super-tax, the Tories won't oppose it.

As one senior Conservative told me, such a super-tax might be bad for the UK, but it would not be great for the Tories to oppose a tax that may give a nice warm feeling even to many of their core supporters.

Comments

Page 1 of 2

  • Comment number 1.

    Robert:

    Yes, that would be a super tax in the realm of a huge
    amount of money; as per to the last report....

    As one senior Conservative said, such a super tax might be bad for the UK (How would it be the bad...For the reason, banks can't make as much money than usually making)...

    =

  • Comment number 2.



    Funny how Darling introduces a windfall tax on bonuses following massive publicity on bankers being awarded bonuses. It is as if he is reacting to public opinion and not making considered, rational strategic policy decisions for the long term benefit of the country. Very disappointing. I hope he at least does some thinking as well and not just worrying how each news item will play out in public. BTW this row has been on the agenda as an obvious pre xmas spat for about 5 months, ever since it became obvious that the investment arms of the banks have been booking mahoosive profits. Did Darling not think they would want to reward their staff?

    I think the banks squealing will count for nothing as the new maxim is of course...If Vince Cable thinks it's a good idea, don't bet against it.

  • Comment number 3.

    Taxing 60% or more of someones income is obscene full stop.

    And are Nu Labour really naive enough to think that employees of global companies will stay in the UK and get shafted when they can easily re-locate to save literally £1000s and £1000s of unfair taxation.

    If and when this absurd taxation is brought in there will be a net loss from tax receipts, and more importantly all these big earners will be spending their salaries in foreign economies instead of helping UK businesses.

    Just as we get economic immigration so can countries who tax fairly.

  • Comment number 4.

    Aside from the fact that I don't know what a "wealth creating" bank is, this seems to be the government punishing the successful. It's a smoke screen to hide its own deficiencies.

    I CANNOT approve of a scheme in which the government whips up public hatred of the banks (to cover its appalling failure) then punishes them as a way of catching votes. It will serve the main parties right if London collapses as a financial centre. Investment bankers can only be caned so far then they'll go where tax conditions are more favourable - that ain't difficult with the UK being one of the worst for punitive tax.

    Brown and Co. have made too many mistakes and this looks like another one that's going to cost us all in the end.

  • Comment number 5.

    So plenty of politics being played irrespective of further damage to the UK economy. Has anyone asked Darling or Brown if they categorically rule out 'working' for a bank after they are kicked out of office? They are probably licking their chops in anticipation... "By this time next year, we'll both be millionaires!". Actually, I suspect they already are.

  • Comment number 6.

    At last, this double dealing government has woken up to the fact that they are likely to lose the next election because the vast majority of the British public is totally sick and tired of over paid, bloated, banking executives blowing their own trumpets and setting their own cosy club remuneration packages. The bankers defence is that they are 'special' and they are 'expert' and they are 'talented' and any tampering with them will be to the detriment of the UK financial services and banking sectors, by effectively draining the UK of their remarkable talents. Indeed, their talents are so remarkable, they succeeded in bringing about the near total collapse of what used to be the most respected banking system in the world.

    Given that they are a bunch of greedy, avaricious charlatans who have amply demonstrated their abject incompetence, good luck to the financial sector of any other nations who may feel inclined to gamble their futures on engagement with such nincompoops. Perhaps we can now break the cosy club sequence and clear the decks for some real talent.

    At the start of this fiasco just over one year ago I advocated that a super tax should be imposed on all income, of any terminology, over, say, £0.75m, perhaps on a sliding scale so that over, say, £1.5m the treasury is clawing back at least 90% of any excess over that level. Easy to set up and easy to collect and, indeed, in my view perhaps a super tax should not be restricted to just banking executives.

    Only this week, 1700 steel workers in Redcar were given the news that they are to lose their jobs. That is a direct result of the fabulous talents of the financial services sector 'experts'. What solace is there for those and the millions of other workers and their families world wide? This is no longer a matter of economics, it is an issue of morality and the Government must show it has the moral fibre to discriminate against those in financial services and banking who have clearly shown to us they are completely devoid of any moral fibre in themselves.

  • Comment number 7.

    Peston, ""wealth-creating bankers and financial institutions emigrated to rival financial centres ""
    What evidence do you have that they are wealth creators?? This is a totally irresponsible statement without any proof or backing. On the other hand they take away wealth from the common man i.e. the Tax payer and enrich themselves.
    850 billion of support just means that the Tax payer has given the banking industry the support worth taxes given by them in the last 300 years.
    There will always be banks in the UK and financial services. So there is no chance of us losing any jobs.
    And if we do need talented people we can get them from the third world countries at 10% of the cost. Is there anything that you believe that they(bankers) can do and somebody else cannot do? We are up for the challenge if you can come up with a list of those things.
    I would say good riddance. Lord Turner has already been quoted as saying that most financial services activities are socially useless.

  • Comment number 8.

    fourniers

    Bravo!

  • Comment number 9.

    Whatever taxation is applied to banks and/or bankers, the cost will be met by customers via account charges, arrangement fees and higher interest payments. Caledonian Comment

  • Comment number 10.

    ... "wealth-creating bankers" ...

    Robert, are you being polite or are you missing the point?

    These people are 'wealth manipulators' - transferring wealth to the already rich, whilst reducing wealth & destroying value for everyone else ... they are not 'wealth creators' or 'value creators' ... take a look at http://poweromics.blogspot.com/2009/08/wealth-creation-vs-wealth-manipulation.html for instance ... as well as many more of the comments made on this blog (and other blogs) too.

  • Comment number 11.

    On the positive side, when all these bankers leave, property prices will become a little more sane.

  • Comment number 12.

    'The UK may have become excessively dependent on the City and financial services'

    May have?! Uk banking assets, last time i checked, are equal to 433% of the UK's GDP figures. That puts us in PIGS territory and there is the real concern that if the worst occurred i.e. a second more dangerous debt crisis based around sovereign defaults, that the UK would this time around not have banks that were too big to fail but would rather be left with a banking sector that was too big to save.

    Having said that, a windfall tax of any description on banks is a pretty dreadful idea economically as it can only have a negative impact on the UK banking, financial services and real estate sectors which by extension would be bad for the counrty as a whole. Politically however, it fits in perfectly with the slowly souring social mood that is sweeping the developed world that befits deleveraging economies and will no doubt be very popular. But then protectionism became pretty popular in the 1930's too.

  • Comment number 13.

    #6. fourniers wrote:
    "At last, this double dealing government has woken up to the fact that they are likely to lose the next election because the vast majority of the British public is totally sick and tired of over paid, bloated, banking executives blowing their own trumpets and setting their own cosy club remuneration packages. The bankers defence is that they are 'special' and they are 'expert' and they are 'talented' and any tampering with them will be to the detriment of the UK financial services and banking sectors, by effectively draining the UK of their remarkable talents. Indeed, their talents are so remarkable, they succeeded in bringing about the near total collapse of what used to be the most respected banking system in the world."


    I think you'll find the politicians contributed far more to the financial crisis than any bank. It was governments that allowed unbridled borrowing and ballooning credit expansion - the gov knew what the banks were doing, encouraging people to borrow way beyond their capacity; and they happily took a huge tax out of banks' profits, not forgetting the 40% on those big bonuses which they now miss so terribly and scorn. It was the American politicians that allowed Lehman's to fail that started the whole thing off so blame The American SEC for turning a blind eye to what was going on.

    Secondly, the banks and their top brass run the world - don't be under any illusions to the contrary - and if you want to stop Britain being a 'player' in this scheme, you're going the right way about it. We'll be left with the diminutive parochial high-street branches. London as a financial centre will be killed off. Do you really think the clever investment bankers are going to hang around to strive in a place like the UK with its punitive taxes? Please!

    Make allowances for the number of mistakes made by Nu Lab. Everything they touch goes wrong. Brown and Darling are so out of their depth that they can't see that keep caning the banks will kill off their last major source of income. That's why we'll all have to pay higher taxes one way and another - to make up for that huge tax take they no longer get.

    The tax payers may have bailed out the banks but don't forget that the government (clearly outside your knowledge) are already exacting a punitive price for that. Taxing us (taxpayers) as shareholders more still seems positively obscene.

    Finally, why should bank executives be singled out for super-tax on their bonuses? Why not any and every bonus paid to executives across the board?

    I personally think this is a wallop too far. It's a lunatic mistake by a government with a brown touch - unlike Midas, everything it touches turns brown....but strangely doesn't help things grow.

  • Comment number 14.

    #12 David.

    The point is to have a negative effect on banking - to bring it down to much less of a percentage of GDP. That, and giving the bankers a bit of a thumping for being so cheeky to even think they should have a bonus.

    Physical discipline isn't legal so Darling is doing it by fiscal punishment. It may hurt us, but not by anymore than the banks have already hurt us.


  • Comment number 15.

    At 11:06pm on 06 Dec 2009, peter williams wrote:


    "And are Nu Labour really naive enough to think that employees of global companies will stay in the UK and get shafted when they can easily re-locate to save literally £1000s and £1000s of unfair taxation."

    Can they? In theory relocation is very easy. In practice it may be a little more difficult. If you think about the logistics of moving - selling a property, finding a new one, finding a school for the family, getting acquainted with the new environment, etc, etc, I don't think moving is quite the easy task some people think it is. Even if accomadation is rented by the company, there can still be delays and problems. Friends in financial positions had some real problems with moving from country to country, and the process was sufficiently expensive to cause one couple to worry whether their employer would simply terminate their contract as an easy option. And that was before the credit crunch. I suspect now that many companies will be less than willing to shell out the necessary. I moved jobs just before the crunch; since then I understand that my old company has become a lot less generous with things like travel expenses and relocation help, and has become very much less tolerant of the 'settling in time'.

    If said bankers actually own property in the UK, what are they going to do with it? The property prices are likely to be well above what most buyers can afford. If they can't sell, then they'll still be liable for council and property taxes as well as any mortgage payments. If the market suddenly receives a flood of new properties, then will they be prepared to accept a lower price in order to get rid?

    So the question, do they really want to relocate to India or China or Ghana? New lifestyle, new problems (new and interesting tropical diseases...)

  • Comment number 16.

    #3. peter williams wrote: "Taxing 60% or more of someones income is obscene full stop."

    I say...paying bankers million pound bonuses is obscene full stop.

    Don't forget, these bonuses are taken from the money they play with. Our pensions, mortgages, savings.

    These bonuses are out of control. Something has to be done.

  • Comment number 17.

    Of course we wouldn't hate these bankers so much if whilst making all their money they'd also been helping build British industry.

    If we had kept ownership of our utilities, still had Rolls Royce and Bentley, hadn't destroyed GEC and so still had Marconi, Plessey and all those other great companies in that group, if the Mini was built by a UK company, if our oil and gas was being drilled and produced using UK technology, if the wind turbines all over the countryside were made here and so on and so forth then perhaps we'd look at the financial services sector in a different light.

  • Comment number 18.

    The thing about taxes is: they only demotivate people if they are in the future.

    A windfall tax which is widely assumed to be a one-off will only cause grumbling and not emigration.

    So the government has a tricky job here: to tax the bonuses without making recipients think it will ever happen again. Now if everyone believes there will be a Tory government after the election, that might just happen...if not, then it gets more interesting:

    http://www.knowingandmaking.com/2009/10/windfalls-incentives-and-monopoly.html

  • Comment number 19.

    Banks are making bumper profits as a side effect of the massive systemic help that has been given to the banking industry. All banks ,not just those that received direct help, exist today because of this systemic help, had it not taken place ,at enormous cost to the tax payer, then no bank would have been left standing.

    It was correct to support the banking sector when they decided to blow themselves up (2000-2008), however it is also correct that bankers should not personally profit from the carnage they caused in the first place.

    My only question is why is this only proposed to be a temporary "super-tax" on bonuses. Is there any case for not making it permanent ?.

    Given the welcome bankers would receive in Europe and the USA ,bankers threats to leave the country are laughable. Where would they go ?, Dubai perhaps ?, oops no that's just blown up also. So it looks like they are stuck here.

  • Comment number 20.

    Unless they are prepaid to tax the income of all high earners equally (footballers, Peers, Royalty, idle rich, Tony Blair) then this law will likely fail on the grounds of unfair discrimination. It's idiotic.

    Taxing 60% of someone's income is unfair and immoral. If they earn more then they pay more even if the tax scheme is flat-rate. This is just the politics of envy. It's also counterproductive - why do 1 week of work for 2 days pay.

    To those suggesting that relocation is oh so difficult - no it isn't. These people earn a lot of money so living in Jersey, Isle of Man, Switzerland, Monaco etc and flying in for work without too many overnight stays is not an issue. Neither is flying the family out etc. Big pay makes most things easy.

    This will likely diminish London's competitiveness greatly as most large companies (let alone banks, hedge funds etc) do not like whimsical taxation on profits or workers. The Government needs to recall where it's tax take comes from in this country.

    Before anyone mentions bailouts, the banks bailed out by the Government were retail banks playing aggressively in areas they seem not to have well understood. That they were allowed to leverage themselves so highly was the Government's fault as the buck for regulation stops with them. Most of the banks in London providing tax income are foreign and choose to be here, they don't have to be here so I'd think forward a little before trying to make a grab to balance the books.

  • Comment number 21.

    "....if wealth-creating bankers and financial institutions emigrated to rival financial centres"


    That should be "wealth-extracting bankers and financial institutions" Pesto,or do you really take us for the mugs that the bankers and their Troughminster toadies demand us to be?

    If only the corrupt and treasonous British(sic) establishment would just jet off en masse to Dubai.

  • Comment number 22.

    Populism and populist policies might make many feel good, but sadly can make little sense. A super-tax on bonuses is proverbially a shot in the foot. I don't for one pretend to argue that some of the high-end figures talked about are morally justified, but let me share an example. I worked for c.15 years in the City in London (as an advisor not a trader). Like it or not I was fortunate enough to earn over that period what many (and I) consider a very comfortable some of money (yet very very far off the numbers Peston talks about). I haven't added the precise figures up but over that period I would imagine I have contributed >GBP 1,000,000 directly in PAYE taxes and NI (this being heavily skewed towards the latter years as I reached more senior positions). I further contributed indirectly through the raft of other taxation methods the UK government so kindly imposes on its population. Many of you would say "and rightly so". Well, up to a point. Last year I decided to leave the UK permanently as, put simply, I could not see why I should be working from Monday through to Wednesday just for the benefit of Mr. Brown and his cronies rather than my family. What many people fail to understand (because they are blinded by envy and seduced by populist tag lines) is that the vast majority of those in the City are extremely hard working people who earn above average salaries (for good reason) yet not the headline grabbing figures which very very few individuals get from time to time. So whilst Mr. Peston and his populist drum-banging brigade keep going on about windfall taxes on bonuses, you will see an exodus of people like myself who feel no imperative to live in London and see 50%+ of our earnings be pilfered away. Am I anti-tax? No. But is 50%+ acceptable? Hell, no. I challenge any person to say that they are delighted to see half their income expropriated to pay for the profligate spending of the politicians. The UK needs to wake up: it isn't the best place on earth, there is a limit to how attractive working in the UK is and as long as this insane obsession with taxing bonuses continues, to the exclusion of other more sensible measures with which to deal with the banks, all you will achieve is a windfall tax on zero (ie I no longer am subject to any UK taxation). Think twice people in the UK. On the basis of the past few years, the taxes I paid could have probably emplyed anywhere between 5 - 10 nurses. Multiply that by thousands of people (plus the loss of corporate taxes as banks shift businesses abroad) and you are talking real populist issues.

  • Comment number 23.

    We either want a country that actively encourages investment and investors or we don't.

    To the point about it being difficult to move to another country..it isn't. The country that wants the trader who has clients worth billions, will bend over backwards to make the transition as easy as possible for that trader to re-settle in another location.

    This whole thing is about the government spinning blame and making out that their socialist nemesis bankers are wholly responsible for this mess when in fact the recession is down to a whole range of circumstances including high public spending, high house prices and easy credit.

    But, the idea now, of taxing the income earning potential of the country because it is 'their fault' is as stupid as it is obscene.

    Good Investment Bankers bring in a lot of investment money and generate profit that is taxable.

    Yes it is the rich trading to become rich - but it is going to happen anyway.

    I would much rather see them do it here than any where else.

    It would be better if the rich see the UK as a land of opportunity rather than a hot bed of resentment.

    This government with their envy, jealousy and simmering hatred of the well off will turn this country into a land of ghettos with high unemployment and few prospects for the future.

    It may be unpalatable to see these high bonuses, but I think it a small price to pay if 2bn in bonuses encourages £450bn worth of taxable city trading to occur here in this country.

    It is time for the Banks to take a leaf out of the governments book and to start spinning the reasons why these bonuses are so right and why the government line is so wrong.

    After all Labour brought politics to bankers, time for the bankers to take politics back to Labour.

  • Comment number 24.

    the system has been saved from collapse for the time being but will fail totally at some point when it does #22 you will wish you had stayed in the uk.

  • Comment number 25.

    13 Dr Bob

    I agree with everything you say.
    Beware selecting one group of people for special taxation,it might be you next for some completely unrelated reason.In any event this is all a smokescreen to deflect our attention from the goverments total failure to manage the economy and it's years of throwing our money around on pet schemes which do nothing but cause the population grief.
    If the investment bankers are making too much money,then go all out to encourage new investment banking firms,down will come the rates and the ability to pay large bonuses will decline.

  • Comment number 26.

    wealth creating bankers?????????????? haha that's a new one. i've never heard of a 3 word oxymoron before, so i applaud your innovation /sarcasm. i'm sorry to inform you that bankers STEAL wealth by destroying physical value and production. thus massive profits in speculation should correctly be read as global losses. my solution is to impose a 120% tax on speculation and bonuses. let's discourage this unproductive profession and get our young back into the physical sciences and engineering. too many kid's are being brainwashed into being econ majors and various types of "white collar professionals" that contribute little to society.

  • Comment number 27.

    Please remember who created this mess of banking...cant remember who the C of E was when the Banks were told to release the reins of prudent banking, ie cheap loans to people who could ill afford them. Its been very polically clever to steer the nations problems onto the Banks.
    Also if your contract of employment says 'one will be paid 0.01% for every 1 million pounds you make for the bank/us then so beit. If Darling/Brown force those contracts of employment to be broken then it might just cost the bank/us even more than one can imagine.

  • Comment number 28.

    Hi Robert
    Please could you tackle some of the questions below in future blogs:

    1. How do bankers 'make money'?

    2. Do bank bonuses distinguish between people who do something really clever and 'make money' (please see question 1) and those who just happen to be sitting in the right chair when markets go up?

    3. How do current regulations stop bankers paying themselves whatever they feel they deserve?

    3. Are there any banks in the UK that are serving customers well without paying big bonuses?

    Thanks


  • Comment number 29.

    I am sorry boys but you've got to take some of the pain you;ve caused others and pay for the consequences too.........

    So even though I cannot wait to boot Brown out I fully support this type of measure....

    Society should not accept bankers paying themselves huge bonuses whilst hundreds of thousands of people languish on the dole queues as a result of their collective folly and Gov't failure to regulate effectively.

    If I were PM I'de tax every bank employee at 100% over £200,000 income...not for 2 or 3 years but until every person who has lost their job .....and we are talking hundreds of thousands............have found employment once again........this may take 5 to 10 years.

    Every penny of the bankers tax should go directly to the unemployed and their families to help them with their financial struggle or to get them back into work with training or self-employment........a kind of socioeconomic reparation from the banks and the banks fat cat employees to the people whose lives they have damaged.

    Brown and his bankrupt regime will also get their just desserts for their part in thsi debacle within the next 6 months at the ballot box.

    If the bankers don't like it or can't live off £200K pa then tell them to take a running jump to whereever they want! There are plenty of unemployed people ready to take their places one way or another!

    The quicker the banks lend the quicker the recovery, the quicker unemployment comes down and the quicker the bankers can get their hands on the dough!

    This is only natural justice.

  • Comment number 30.

    We have a government who threw money at the Banking sector who had exibited all the foresight of a bingo caller without laying down the rules first. Admittedly Lloyds Bank would not be in the trouble it is in if Gordon Brown had not strong armed Victor Blank into takng over HSBC.
    We are where we are. The Government are tinkering at the edges yet again. A penal tax on bankers bonus's for one year? so if they have any sence they will defer it and roll it into next year.QED. Nationalised Banks should have their core business sliced away from the speculation element of it and the Spec side stands on its own two feet, it contributes when it makes money and if it fails , it fails. end of story The government have just found another £3bn in savings they can make, shame they didn't find that 12 years ago and every year since. Its window dressing over and over again ,the sad thing is it shows not only the contempt they hold the electorate in but the the complete lack of vision or grey matter they possess

  • Comment number 31.


    What a senseless, marginal, and poisonous little side-show...considering all the other difficulties the Treasury and Economy are facing you'd think that Mr T Scholar et al could devote and be directed to devote their energies elsewhere.

    Even if it's only to take a walk in St James' Park !

    This scheming looks like Bread and Circus Entertainment....by horribly incompetent elites. Perhaps including the BBC, Mr Peston ?

  • Comment number 32.

    Having been repeatedly educated on the mindset and morality of bankers, what I don't understand is this:
    In the Business section of the Sunday Times yesterday it was claimed that due to the threatened restraints by government, many of the top bankers from RBS have gone to other firms for even larger salaries and bonuses than they were demanding at RBS. If this is true and they being bankers, why hadn't they already gone to the much better paid jobs?
    Doesn't ring true somehow.

  • Comment number 33.

    Super tax on big ticket bonuses in Investment Banking? Good idea. All the "arguments" against are City propaganda. Both the propaganda and the people pushing it should be ignored. Super tax on big ticket bonuses in Investment Banking? Yes. Let's have it, please.

  • Comment number 34.

    "Taxing 60% or more of someones income is obscene full stop."

    I'm noit sure you understant the workings of tax here. It's not 60% of everything. They're only paying 60% of money they'd only otherwise spend on luxuries. They won't starve, sadly.

  • Comment number 35.

    This is the same tactic that the government have employed every time they come up against something they do not understand or have misjudged - threaten to tax it.
    Again and again we see them come up with policies that are tuned to whatever the tabloids are saying, but are completely unworkable. The spin machine gets into gear, and numerous headlines outline the policy in great detail while the government froths and chunters away trying to figure out what to do and hopes everyone will think it is acting tough.

  • Comment number 36.

    Considering that the bonuses are largely being paid by us, as are the salaries and pretty well everything else to do with the banks, it is pointless to raise the tax. They'll just ask for and get another handout from us from the crooks that run our country.

  • Comment number 37.

    I suggest a better way of controlling bankers' dangerous risk taking than by windfall taxing them would be to end the practice of one way betting. So far as I understand it, traders and managers in banking and related institutions make alot of money when their decisions pay off but don't loose if a loss is made. If traders and managers (and directors) were compelled by law to put their own assets (houses, incomes etc) on the line when they made a decision, I believe they would be more careful about taking risks with other people's money. If they made money they would be rewarded but if they lost they would be financially penalised and could be bankrupted. What seems to have gone wrong with the financial institutions is that employees were gambling with shareholders' and (as it turned out) taxpayers' money without risking their own assets.

  • Comment number 38.

    I appreciate the logic that if the banks insist on paying over the top bonus/income after receiving tax money, that the proposed super tax will recoup some of the tax payers money.

    However, we need to see the detail of this proposed tax, for I fear the bankers will use their 'talent' to avoid paying this extra tax with some sort of tax relief/reducer arrangement.....

    The tax proposal will be another last minute botch up, and in tradition with most British large organistions will be full of errors and incompetence. Labour is poorly run managed, so this is going to be another mess.

  • Comment number 39.

    The first tax at supertax rates should be on MPs who have made profit out of tax payer's money to set a good example. That means all the flipping MPs and any who have taken our money to provide for what the Kelly report indicates it thinks are not fair expenses. So pay the original sum back and pay supertax on any and all profit for having 'borrowed' it interest free over the period.

    Surely if bank bonuses are to be tax on a super-tax basis, so should all bonuses be taxed on the same basis?

    If they were then the FSA, MoD and all the public services who have bonuses would also pay it.

    Any tax has to be a fair tax.

    The situation we are in is only because of government mismanagement and false assumptions.

    This move is not being made to put matters right but to be politically expedient.

    The well-trodden path down through unforseen consequences is being trodden again, for a political expedient.

    Gordon Brown has cherished all of the bankers for all of his time as Chancellor, and has enabled the City to dominate the UK economy. It is he, and the Labour government who have created this mess.

    They need to put it right, and setting an example with a supertax on MPs profit making a good start.

  • Comment number 40.

    There's a lot of comment re people envying bankers here, but we also need to ask why tax rises, any tax rises, are necessary?
    The bail-outs of the banks have been large, but not a significant addition to our public debt.
    The reason tax rises are necessary is because of the disastrous over-spending of our government.
    Now it's time to soak the rich, which is great left wing politics before an election. The problem with this is however simple: the more you tax people on their hard earned money, the more they will move heaven and earth (and country) to avoid paying.
    So the rich will avoid or leave and the rest of us will be left picking up the bill: this for me is the greatest failure of Labour's. Taxing the rich sounds great, but just you wait, it's just the start. The middle classes are going to be hit for 6 or more.
    I find it totally tragic that as a country, having lived through the incrediable pain of the early Thatcher years when very hard decisions were taken to rescue the public finances (and much else), we find ourselves again in such an appalling mess. And after the longest period of growth and wealth creation in our history.
    Surely people have to see through the spin and hammer Labour for this.

  • Comment number 41.

    Brown is to set out his plans for a £12 Billion cut in public spending the BBC are reporting this morning.
    Yesterday, every section of the media revealed "exclusively" the super tax on banker's bonus' that was planned for for the pre budget report.

    It is an absolute disgrace - anyone remember parliament? the place gordon brown told us his government would announce policies and plans?

    Targeted leaks, stage managed press conferences, about the country's finances and the government's plans is an outrageous attempt at electioneering and should be stopped.
    The policy itself, "a super tax on bankers bonus'" is too little too late.
    Another one of Brown's fake promises was to be accountable. Utter tosh.
    The more I see and hear of this shambolic government and its one man band style leader, the more it becomes apparent that he/they do not have a clue what they are doing.
    Why bail out banks to the tune of billions and then tax them as they attempt to pay the money back?
    Why are the people not seeing a penny of any financial help given to the banks?
    Is this new "tax" the reason why the supreme court found completely the opposite to the independant house of lords and the appeal court on overdraft charges with the OFT?

    Stage managed nonsense by a labour government who are shifting around on policy like a carrier bag in the wind - policies taken from the BNP, libdems and the conservatives, with a sprinkling of green party on top.

    They do not talk to joe public of the UK directly, instead stage managed talking shops and conferences, where pre set up answers to obvious media questions are read from a script.
    when was the last time you saw a policy announcement being announced in parliament then debated?
    here we have one of the most important budget statements in history, being leaked to the media and the prime minister announcing what will be in the statement days before the chancellor (who's job it is supposed to be) says a word on it.

    Shameful!

  • Comment number 42.

    As I have said before these ever so talented bankers have asked for this and now they are going to get it whether it be a good or a bad thing. It is they who have put the public in a hanging mood.

    Clearly their talents do not include being politically astute.

    If they choose to go to another country to `create wealth' then this will place the remainder of the UK economy at a great advantage as we too can then create some wealth without having our entire economy distorted to pleasure the City.

    Furthermore given the destructive effect of their so-called wealth-creation on the real economy in the UK it would be so much better if they took their risk-taking elsewhere and ruined someone's else's country.

    Personally I find the concept of a risk-taking banker a little bit hard to believe as a concept. What do they mean by risk? Is this the risk of funding start-up firms, the risk of investing in the further development in new and existing industries and technologies? No; it is nothing of the sort: it has been about lending money they don't have to people with no assets and no income to repay the debt they are incurring. That is not risky: its stupid.

  • Comment number 43.

    Whatever he decides to do, of one thing we can be sure; it will be badly thought through and the unintended consequences will outweigh the benefits.

  • Comment number 44.

    Unless I am missing something, this is all "smoke and mirrors", and the total tax rsied will be precisely GBP zero. Why? Well there are two separate government policies which conflict here. Ally D has previously announced that, certainly for banks with government shareholdings, cash bonuses would be severely limited with the bulk of bonuses paid in shares. FSA has also stated that regulated firms should be linking bonuses to long-term performance, payable in securites not cash, and paid out over an extended timeframe.

    The taxation of share-based incentive schemes is that income tax is payable only when shares "vest", ie become the property of the employee. So, if banks inform staff that they have been awarded shares now, but they do not vest for sevral years, then there is no tax payable immediately.

    Having said that, putting in place a potentially punitive tax on bonuses will not do any harm even if it does not actually raise any tax. Even the risk of taxing bank profits would make further capital raising more problematic for the banks, and it is likely that they will have need to do this over the next year or two. Also, anything likely to impact bank share prices negatively runs contrary to the interests of taxpayers, given the UK government's stakes in RBS and Lloyds. At some point these need to be sold, preferably at a profit. Additional taxes on bank profits make this tougher to achieve.

  • Comment number 45.

    28. postajedwards

    How do bankers 'make money'?
    By selling their expertise to business’s to help it determine the best strategy and best place to raise either debt or equity capital. They then put all the paper work in place and ensure that all the very lengthy US, EU and UK legislation has been adhered to. If it’s not that hard why not have a go? you can make a fortune.

    Do bank bonuses distinguish between people who do something really clever and 'make money' (please see question 1) and those who just happen to be sitting in the right chair when markets go up?
    Better still you explain how this can be achieved. A banker makes a call to invest he's either right and takes a cut or wrong and takes a hit. It’s a judgement call you define the difference between a calculation and luck in a world where decisions are based on likely outcomes and probability and not a certainty.

    3. How do current regulations stop bankers paying themselves whatever they feel they deserve?
    They don’t. Does the government stop your employer over paying you. Should it decide on what you are worth? Perhaps it should decide what we all get paid. We have seen how good they are at deciding their own remuneration.

    3. Are there any banks in the UK that are serving customers well without paying big bonuses?
    No.


    Thanks…. No problem

  • Comment number 46.

    #42 Stanilic

    Your say 'It is they (the bankers) who have put us in a public hanging mood.'
    It isn't actually.
    It's the Government who have been whipping up this sentiment so as to avoid any blame for themselves.
    The Government and FSA used to say sub-prime mortgages were great, capitalism working to help the poorest in our society own their homes, etc. Banks were actively encouraged to take the risks now decried as so appalling.
    'Light touch' regulation, remember that one?, ruled the day.
    The Treasury and FSA allowed RBS to borrow ludicrous amounts of money to buy ABN Amro, it was Labour friendly banks (Northern Rock in the North East, RBS in Edinburgh, Halifax and Bank of Scotland) that ran up the worst excesses. To support the Government's strategy.
    Yet does the Government acknowledge any sort of role? No.
    The bankers were not and are not perfect; that is why they should be regulated. And whose responsiblity is that? The Government's.
    And why do taxes need to rise so much? Because Labour have overspent by more than anyone can even begin to imagine. Again.
    So: hate bankers with a vengeance if it pleases you; but please also be consistent and hate the regulators, Treasury and Government equally. All are jointly responsible, whatever the new spin tries to tell you.

  • Comment number 47.

    Those who do not study history are condemned to repeat it.

    In the 1970s top rate tax was 83%(plus a non-earned surcharge that took it up to 98%). When the Tories came in the cut top rate tax to 60% and the amount of tax received from the top 1% earners went up. Later they cut it to 40% and again the amount of tax from the top 1% went up.

    So if cutting top rate tax from 60% to 40% increases tax why on earth would increasing the top rate from 40% to 60% actually increase the amount of tax being paid?

    This is typical Lab policy - great headlines nevermind the reality. In order to get out of a hole spending needs to be cut and the amount the revenue receives in tax needs to go up. There is a very good argument that rather than increasing top rate tax rate you would do better to reduce tax on anything above £100,000 to say 25% - it would bring in more real cash - but of course the left wing jealous types that populate so much of this board would not accept this.

  • Comment number 48.

    Should of let them fail and had a year zero moment. Might still be coming that though! The reason they were 'saved' was purely to retain the assets of the rich, my few thousand wouldn't of hurt me much, but their millions would! That was it in a nut shell, so any moaning now is falling on deaf ears amongst the general populous.

  • Comment number 49.

    33. sagamix

    Super tax on big ticket bonuses in Investment Banking? Good idea. All the "arguments" against are City propaganda. Both the propaganda and the people pushing it should be ignored. Super tax on big ticket bonuses in Investment Banking? Yes. Let's have it, please.


    And if you were a hotshot fund manager earning your bank a cool 75 mill a year we all know you would stay and pay your taxes. The trouble is Sagmix the guys with the actual ability to do this job won't. Other countries will offer them a nice little home from which to click their mice and send funds where they are needed.

    Never mind you and your mates can get work clearing tumbleweed from the City.

  • Comment number 50.

    Robert, I realise we have to respond to your article but are we not in a phoney period before the next election. The Government are raising the ante against the Bankers because it suits their purpose. Shame we all cry "Tax them to the hilt for the harm they've done". Rubbish. Look behind the posturing and rhetoric of this discredited Government and you see a shameful (political) positioning of "it wasn't us, it was the Bankers and the USA". Taxing the bonuses is a tactic of diversion. Sure the Bankers took undue risks but they were allowed to because the Government were gleeful of all the tax revenues the Bankers paid and took no heed of their duty of oversight.

  • Comment number 51.

    46 bluntjeremy

    You haven't read my long history of crtiticism of this government. I was one of the first to blow the whistle on Blair and Brown and got a lot of stick at the time as a consequence.

    Having been through two venture capital projects in SME in the Eighties and Nineties I used to be a great supporter of The City. Then for some reason I know not the wot of, venture capitalism displaced itself from sustaining the real economy to betting on the equivalent of the 1530 at Newmarket. This happened around the same time as the economy seemed to become suspended from sky-hooks rather than firm foundations.

    You are right, the government of New Labour has a responsibility for allowing a bubble to develop. They cannot and will not escape from that indictment. But, neither can The City.

    Whatever is going on in the world does not allow anyone to suspend their own judgement and believe in the prevailing utter nonsense. The banks, the regulators and the state have failed the people of this country and the punishment is deserved.

    There is going to have to be a long flushing process of which this tax is just the first step. The next stage in the process will be to punish the big New Labour client state: the very idea that some public servants are paid over GBP 150,000 per annum and some, I am advised much more than that is quite unacceptable.

    We need to direct all of our talents into the real economy to get that growing again. Only that way will our circumstances improve. Reinflating the bubble as has been happening these last nine months is not a strategy; it is a refusal to learn the lessons of the past.

  • Comment number 52.

    Great idea, tax the banks, or the bankers: sounds like a popular move that might win a few votes, but who will pay the tax? The punters of course when the banks reduce interest on savings or raise the charges for services to maintain profits. This is Labour's answer to their own incompetence, raise taxes, it always has been and looks like nothing has changed.

  • Comment number 53.

    Oh to bite and swallow the bitter pill.

    I am not against people earning huge amounts of money but it is pretty disgusting when compared to the wages earned by nurses, farmers and other far more important jobs. Could we survive without bankers,,, yes. Food? No.

    The reality is though that if we all want to enjoy a certain standard of living, then we need finance and a supply of money. I'm amazed some people still think that letting the banking system fall would be good. Even my simple view of the world can recognise that a healthy finance trade will bring money into our domain via their profits and the tax that is applied to it.

    Sure, tax it but don't drive it into oblivion. Indeed, encourage it because the healthier and stronger it becomes, the more it will generate for us all and if us mere mortals have to endure watching the chosen few earn mega bucks and spend their lives swilling on champagne, well, that's something we just have to accept.

  • Comment number 54.

    "The UK may have become excessively dependent on the City and financial services, but it would not be great for the economic prospects of the UK if wealth-creating bankers and financial institutions emigrated to rival financial centre..."

    Over the last two years the banks have nearly destroyed the real economy and the finances of this country. Even in good times banks do not "create wealth", rather they generate revenue, by taking a rake-off - effectively a private tax, - from those real wealth creators who need credit in order to operate. Given an opportunity, they may choose to shut a business down, because that is more profitable than keeping it going.

    Banking is a modern form of privateering - legalised piracy. We have put up with them because what they steal from overseas is worth more to the UK than what they steal from us. But more or less since WWI, this power has distorted the British economy and inhibited real investment and wealth creation.

    The only sane future for the UK is to downsize financial services and destroy the Banks' monopoly of credit. QI should have been used to inject credit directly into the system via a "Reconstruction Bank", rather than prop up a system which has always been prone to catastrophic failure!

  • Comment number 55.

    Tax them and let them leave, I doubt they will find a better deal anywhere. Their atrocious handling of the credit bubble shows they are creatures of profit who leave discretion and prudence at the front door in the race for bloated bonuses.

    Because of these bankers, the pound has been panned, government debt has skyrocketed, Britain will be one of the last to exit recession and millions have had to face unemployment or greatly reduced salaries.

    That is not a price worth paying to keep these fat cats in their ivory towers. It is time to downsize the financial sector their so called masters.

  • Comment number 56.

    PS - I am not personally productive, so I'm not being "holier than thou", but consider this: Suppose the whole south-east of England, including the City, disappeared into a worm-hole. After the initial shock, would it affect the ability of the rest of the UK to feed or clothe itself?

    Personally, I believe that the City is like a cancer in the body economic - it thrives by diverting the lifeblood of and weakening the real economy.

  • Comment number 57.

    strange there should even be a discussion on the subject of bank bonuses....it is the government just being useless...with what the banks have received...is a wage of the size they do get not sufficient...
    in most businessess you get paid if you work and possibly a bonus if all goes well...these bankers should not even get paid if they caused the mess.....they should have lost their employment immediately...as well as the chancellor who talks and does nothing..all pals it seems

  • Comment number 58.

    Post 30. Lloyds took over HBOS not HSBC.

    The latter is stil independent.

    One further point. Post 5 you query re Gordon and Alistair ruling out going to work for banks in the future. I know bankers are not the smartest tools in the box but I would at least credit them with enough sense not to employ these two numpties.

  • Comment number 59.

    I agree with the view that an individual tax should be employed rather than a group banking tax. Don’t be fooled by the view that replacing the irreplaceable is impossible. There is always somebody out there that can do your job. Working for Lloyds Group, I know that it is evitable that the company will be leaner and made more streamlined and those here that have gratuitously been kepy their job are probably going to have to work twice as hard for the same money whilst those that made mistakes have walked away.....

  • Comment number 60.

    22. At 06:06am on 07 Dec 2009, namuncura wrote:

    Think twice people in the UK. On the basis of the past few years, the taxes I paid could have probably emplyed anywhere between 5 - 10 nurses. Multiply that by thousands of people (plus the loss of corporate taxes as banks shift businesses abroad) and you are talking real populist issues.

    How many nurses could have been employed with £850bn?

    Whatever you and your colleagues have paid in taxes over the last few years is dwarfed by the amount of taxpayers money spent on bailing the banks out.

    In the long-term, the more investment banks that leave the country the better. Perhaps we could then concentrate on real wealth creation...

  • Comment number 61.

    #45

    "How do bankers 'make money'?
    By selling their expertise to business’s to help it determine the best strategy and best place to raise either debt or equity capital. They then put all the paper work in place and ensure that all the very lengthy US, EU and UK legislation has been adhered to. If it’s not that hard why not have a go? you can make a fortune."

    Whilst this may be true, I can't help wondering why this is the preserve of a few incredibly well paid individuals. The paperwork may be onerous, but its all statutory and thus pretty much any intelligent person should be able to do it.

    Advising on the best way to raise capital does not sound to be something that is the preserve of a few individuals. Surely there are many people in a large bank who would have this expertise?

    Are you saying they do this work alone, without any assistance from the Banks' backroom staff (ie just signing the documents)?

    Why can the banks not put in teams with the collective expertise necessary? this would surely be cheaper.

    What qua;ifications are needed to be an investment banker?

    Are you sure that its not more of a case that these successful bankers just happen to have friends in the right places and keep their client lists secret?

    How do other investment banks know the performance of job applicants from other banks? - Do they just accept a claim of " I brought in £2B of business? Or do they ask who the clients are (and are given a few juicy ones as proof)?

    Are the clients clients of the employing bank or the investment banker? Adverts for investment bankers appear to require them to have a long list of clients who might then poached from previous employer - is this why investment bankers are so valued?

    Perhaps the real reason investment bankers are paid so much and get huge bonuses is

    a) their client list
    b) their contacts
    c) the fact that they are little more than superior double-glazing
    salesmen (this is where the bonus culture comes in)
    d) they are really just the 'face' of a sales team

    Lets face it though, a good salesman is worth a lot of money if they clinch the deals. Just don't make the job sound as if it requires immense knowledge expertise and brain power on the part of the individual investment banker, a lot of success is down to lady luck and a rising market. I would suggest that other professions such as IT require greater intelligence.

    Finally, the bankers will make pots of money out of the Kraft / Cadburys bid if it works out. This will bring in money to UK. However, when Hersheys close down the UK factories and replace Cadbury's chocolate with that vile muck they purvey the UK will be the loser.

  • Comment number 62.

    The general assumption behind some of the policy thinking and commentary here seems to be that all bankers are alike, none of them contributes anything of value and we are better off without all of them, the 'profits' they make are just 'funny money', their contribition is socially useless, etc. Understandable sentiments, and comforting though simplicity is, this is too simplistic. When the politicians start playing to the crowd based on these sentiments, we are in danger of hurting ourselves for the sake of short term electioneering.

    There is a huge diversity of functions in banking, and some of those functions are useful to the functioning of the economy and are valuable to UK and European industry - and I'm not just talking about 'normal' commercial banking (ie traditional corporate lending) but also large parts of what is generally referred to as "investment banking". The functioning of the global economy relies on international capital markets. Most of what investment banking should be about is making capital markets work - putting together investors/savers (pension funds/insurance companies) together with borrowers/issuers (companies who need money). Capital markets enable borrowers/issuers to raise money more quickly and cheaply and make the economy work faster and better. Any investment banker who contributes to this core activtiy is doing something useful - and there are lots of functions (advisory, research, institutional sales, market making, etc) which do that. Boring, but important. The issue is that there are other bits of investment banking (call it the 'casino' if you like) which are effectively about taking bets with the bank's own capital to chase short term profits, often on a leveraged basis. It's not completely straightforward to disentangle the 'value-additive' bits from the 'casino', but anyone with a little nous and the time to study it could figure it out. That's what the Govt should be doing - and should then be taxing / regulating the hell out of the casino bits (or separating them out and ringfencing them so they can't drag the rest of the bank down with them). This would make banking more stable, less profitable (in good times) and less likely to fall over (in bad times) and would drive alot of bankers focsed on casino-type activities into something more useful. Mervyn King is rightly focused on this point. But that's all a bit complicated and there's an election coming up, so the Govt is ignoring Mervyn and going instead for a tax on all bankers, regardless of whether they are doing something useful or not.

    This is probably good for popularity but could be poor long term policy. I am not defending the level of pay and bonuses generally in the industry (investment banking is not as difficult technically as being a doctor, for example, and certainly not as useful, so it's not just that it's better paid). It's also clearly unjust that bankers who so poorly mis-managed their institutions should now emerge from this environment being paid large bonuses, buoyed by the support of taxpayers, while the broader economy struggles on. But however this is tackled, the politicians and media (and bloggers) shouldn't lose sight of the fact that there is a real world-leading industry on our shores which at its core serves an important role not just in the UK but also the global economy - a massive proportion of capital markets activity in Europe is conducted in London. This industry has attracted alot of people to the UK to work, pay taxes and spend (although Brits are fortunate to have language, cultural and georgraphic advantages in competing for work in the industry). This is a valuable strategic position for UK taxpayers and we should take a little care over it while the Government figures out how to bridge a fiscal deficit of £10-15bn per month. Let's be clear - this tax will hardly make a dent in that number, and could make it worse if it reduces the tax base.

  • Comment number 63.

    Er.. For someone to make a pile of money, someone has lost a pile of money. Should the windfall not go to those who have funded this apparent surplus or is the whole banking system such a free for all that anything goes including the government deciding to hive-off a slice of this easy money. Ar... I get it, the taxpayer is included in someone who has lost a pile of money, so that's all right then. If this country is dependent on an "industry" (and government) that earns vast sums of money from juggling vast sums of money and nothing else, then we're skint. I'm surprised the Pound has lasted so long. Perhaps, because it is now digital, it'll go on forever. It's only Noughts and Ones.

    There are some very good comments from you and others on your site - Thank you all and keep them coming.

  • Comment number 64.

    To those who blame the government, yes they have some of the blame to share and they will be judged accordingly at the next election. At least they took the necessary measures to stop this recession becoming a depression.

    But it is the banks that must take the majority of the blame. They had their fingers closer to the credit bubble pulse. They were the ones who raced into highly leveraged derivative positions and no doubt skirted legistation to maximise such dangerous trades. Any steps they took to counter balance such risks clearly were ill thought out or ignored.

    It was their "too big to fail" attitude that took this excessive risk taking to extremes. If I had my way some of them would already be in jail.


  • Comment number 65.

    @20 - Panto, Progressive taxation is morally just because those that are better off should help weaker members of society. Regardless of the sector of the economy they work in.

    Relocation - is not physically difficult but it's not attractive either. Aside from the best jobs (cash) the reason rich people live in London is that it has the best restaurants, bars, clubs, schools for the kids, shops for the wife, cultural diversity (Theatre ,ballet etc) , etc etc etc. You can move to Monaco or Geneva but the reason people do not do it ,or only do it for short periods of time before coming back, is because Monaco, Geneva etc etc are incredible boring and unattractive places to live in comparison.

    You state that the only banks bailed out where retail banks. Firstly Lehemans and Bear stearns wouldnt consider themselves retail banks and secondly - ALL BANK EXIST TODAY BECAUSE OF THE SYSTEMIC ASSISTANCE PROVIDED at massive cost to tax payers around the world. It was correct for the banks to have been supported during the crisis but bankers should recognise this ,rather than being disingenuous and pretending they owe there existence to there own intelligence.

    The current bumper profits being made in the city are a side effect of the systemic help that was provided (ultra-low rates, TARP, asset purchase program, special lending facility etc etc). It is not morally just that the people who created the crisis should profit from its ,tax payer funded, remedy.

    My own view is that we should progressively increase banks capital ratios and have a more stringent regulatory environment ,agreed with the EU and USA, which puts a stop to socially useless banking activities.

  • Comment number 66.

    61. Clive of India

    It’s not the preserve of a few there are thousands and thousands of them.

    If advising on the best way to raise capital is easy lets all have a go. A few will still rise to the top, become highly sought after and charge accordingly. If I made 75 mill a year for my bank I’d certainly want a good cut of that.

    Of course they happen to have friends in the right places and keep their client lists secret? Most business models work on that basis, mine certainly does.

    Intelligence. What’s that got to do with making money? Why should that be a criteria? What next a state sponsored IQ test to decide salary scales.

    Bottom line is bankers don’t make money in the conventional sense; they take capital invested in one area and relocate it to another so that it creates a higher return for the investor. They then take a slice of the upshot.

    Their activity also attracts huge amounts of foreign investment to the UK.







  • Comment number 67.

    @ 62 - ddelanom - very good post. Agree 100% with what you are saying.

    The key issues are surely preventing future failures through proper regulation and preventing those that caused the current crisis from profiting from its remedy.

  • Comment number 68.

    Lehemans and Bear stearns ,of course, where not bailed out but they are examples of pure investment banks that got into trouble and eventually went bust or where taken over due to excessive risk taking.

  • Comment number 69.

    60 Paul

    The problem with your analysis is that it compares apples and pears and quite frankly is driven by emotion rather than logical analysis. Firstly, the figure of GBP 850 billion you quote is nonsense. Are you referring to the US or the UK? It is certainly not correct for the UK. Secondly, the crisis and recapitalisation of the banks has little to do with well over 90% of the individuals who work in the City. So the idea that just because you have a festering dislike for investment banks everybody should be smashed with the same sledgehammer is illogical.

    We all have to put up with living alongside things we do not like. You may not like the fact that investment banking (even in its normal guise) pays so well. Do you similarly dislike lawyers and accountants for paying well? Have you an equal distaste for the millions the government spends on overpaid consultants? Are you going to level your emotive critique at the government for its moronic policymaking? Why don't you dig out Gordon Brown's speeches as Chancellor encouraging the most economically challenged to take out unaffordable mortgages? Or are you one of those?

    Did the banks make mistakes? Yes and managements have been removed or held to account. Is every employee in every investment bank a wreckless, gunslinging time bomb? No. And if you believe that then you are totally ignorant about what constitutes an investment bank. If you feel the UK can be rid of the investment banks that employ so many people and ordinarily pay very significant amounts of money into the Treasury's coffers, you are entitled to your views. But don't for a minute think that the UK won't be many pounds short in tax revenues. My personal story was simply an example of how easy it is for a mid-tier anonymous fish in that pond you so dislike to jump out of the UK and leave you with zero taxation revenue. It took me less than three months from making the decision to being on the plane. It may well please you but it isn't going to make the UK any better off in terms of tax revenues.

    As for the future of the financial industry, I have long advocated from within a separation of the retail banks and investment banks. They should have never been allowed to get together (thank the Americans for that). This is the only way to protect savers (of which I do happen to be one) from risk-taking businesses such as trading.

  • Comment number 70.

    #66

    Are the investment bankers employess of the banks, or independent contractors? I ask this, because if they are employees why are they allowed to keep their client lists secret from their employers? Why do the banks not engage people as employees and tie them to non-disclosuer of client lists for x years?

    In answer to your question, why don't you give it a try? I would be delighted to have a go - do you have an opportunity available? - I have a postgraduate diploma in management studies and 33 years experience in IT.

  • Comment number 71.

    At some stage of the game banks and bankers have to accept that they will not get their own way. Correct me if I am wrong but wasen't a similar argument made a few years ago for deregulation and more freedom for banks? Look were that got us!!!

  • Comment number 72.

    Good (sic) bankers make money whether the markets move up or down. The real issue is the short-term nature of trades and how good bankers manipulate the markets to move sufficiently - up or down - to make money.

    Wealth is not money !!

  • Comment number 73.

    The government is to blame for setting it up that bubbles could and would be blown on the structure, regulation and sheer stupidity of political expediency combined with delusional behaviour.

    We all know that.

    The banks were given free rein once Gordon Brown had made the Bank of England 'independent' and taken away its remit to control and regulate the banks.

    It was that act, combined with the nonsense of creating another bonus rewarded quango, the FSA, that caused the problem in 1997.

    Prior to that banks were told how to run their businesses and what not to do by the Bank of England. Many a naughty bank was sorted out with secret funding over a tricky time, but we were not told about it and the old lady of Threadneedle Street, kept them in order like a good nanny.

    It is hardly any wonder that banks who always behaved like naughty children who want to push the boundaries all the time and hope they won't get caught.

    So, what Gordon did when he de-regulated the banks in 1997 creating the triumverate of Treasury, FSA and Bank of England, was to create a huge playpen so that the banks could run amok.

    The Bank of England denuded of its responsibilities toward regulation and running of the banks could only focus on the inflation/deflation ratios, money supply and the global financial system without having any power to do anything other than change the base rate of interest.

    As the base rate of interest bears little relation to what banks charge because they charge according to the libor rate, the Bank of England which had done such stoic and valuable work for so many years, was castrated by Dr Gordon Brown.

    The new kid on the block, the FSA, was not staffed with the right people to do the job, they had not got the skills, as we all know to our detriment. Both the government and the FSA thought it was a good thing to pay staff bonuses in the FSA anyway and many of its staff came from and go on to work in banks.

    The Treasury was too busy believing Gordon's mantra, that he had ended the system of boom and bust - and how delusional that has proved to be.

    Meantime, along with his regular mantra of the end of boom and bust, Gordon Brown went on a spending spree and borrowed money whilst also having close lunches with the banks, who were the equivalent of his huntin', shootin' and fishin' pals. These lunches happened every Tuesday at No 10. The bankers could do no wrong, could they?

    High level political endorsement of all of them ensured they were not overly scrutinised by the FSA either.

    The government was just as wrong when it bailed out the banks and just supported them.

    Had it insisted that a portion of the money used in the bailout was targetted specifically toward people and business rather than just shoring up the banks, then some of the disasters that have happened since would have been reduced.

    Had the FSA also not jumped in and insisted on further tightening up the capital ratios of the banks and, two months ago, told the RBS not to pay back its interest payment on time, thereby ordering it to be in default and other rather mindless decisions, then some of the problems would have been reduced again.

    The desperation shown in its scrabbling around in a bare cupboard for tax take now is acute - because it miscalculated how much it would get in tax take - it had again miscalculated the growth in the economy.

  • Comment number 74.

    good bit of pr work for the gov, and just in time to due to the public outrage, so i have now got the job as banker the salary is £850,000 PA
    the bad news is my million pound bonus is to be taxed by 50% ,so thats not to bad it means i only have £500,000 to spend, suppose i can live with that,and there is always next year to look foward to !:

  • Comment number 75.

    @69 Namuncura

    I think you have misunderstood.

    I was referring to investment banking not the individuals involved. I do not dislike (or like) someone on the basis of occupation or income and in terms of being emotive, I hardly think my comment can compete with yours. It was you that mentioned the nurses after all. Not to mention the various likes or 'festering dislikes' you have attributed me with.

    I was simply arguing that the long-term future of the country would be better served with less reliance on investment banking even if you are right about short-term tax revenue.

  • Comment number 76.

    • 70. Clive of India

    In the case of Goldman Sachs for example they are all partners in the firm, they own a state and take a stake of the profits. (don’t confuse high street banks with investment banks)

    It’s not really just a case of having a list of clients. I could hand you my client list, in fact my firm publishes it as we see it as an advert. It’s my track record that brings me business. (Just to be clear here I'm not a banker so have no openings … sorry best stick to the IT)

    Just out of interest; hypothetically of course, lets just say I have a round billion to invest can I have your best assessment of the markets and 3 ideas where to place my fund to maximise my return please.



  • Comment number 77.

    75. Paul wrote:

    I was simply arguing that the long-term future of the country would be better served with less reliance on investment banking.


    Fine you may be right but don’t try to get there by biffing the bankers. Achieve it by developing whatever else you have in mind.

    Just what do you define by real wealth creation anyhow, I don’t think nurses create it but totally understand your desire for £850 bn worth.


  • Comment number 78.

    #76

    I follow your argument about Goldman Sachs partners, but can't relate this to RBS which I believe does have investment bankers but no partners. Can you explain?

    Investing our billion I would try

    i) Falkland Islands oil exploration rights
    ii) Russian Gas
    iii) Major pharmaceutical companies

  • Comment number 79.

    75 Paul

    Seems like I did misunderstand you. I agree, from within, with the need for less reliance on investment banking. In my view that would take its natural course if (a) the banks were broken up along the lines of Glass Steagall (as investment banking risk-taking would become more transparent again), (b) the authorities capped the proportion of funding that any institution can rely on the wholesale markets for (thereby curbing the degree of leverage any institution can build without using traditional long-term sources of funding) and if one wants to be even more radical (c) introduce growing restrictions on the amount of proprietary trading of derivatives and credit on the overall system to stem the speculative element. Taxing of bonuses is pure political PR with no consequence for the system other than the short-term loss of tax revenue we are both agreed on.

  • Comment number 80.

    Clive,in post 76 is clearly calling for a new Glass-Steagall Act.

    That way none of us could mistake a High Street bank and an Investment bank. The issue in the UK is as post 78 points out that RBS and HBOS had huge Investment bank arms (see link below for next years nightmare at RBS & Lloyds).

    It is interesting that Barclays is splitting itself internally on a basis that would be in line with a new Glass Steagall Act in the USA or similar in the UK.

    It appeasr there is a huge nightmare coming for the banks in the next couple of years as huge amounts of commercial property loans come up for renewal and most are in a loss position or are non performing.

    http://www.ft.com/cms/s/70cd9474-e29b-11de-b028-00144feab49a,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F70cd9474-e29b-11de-b028-00144feab49a.html&_i_referer=http%3A%2F%2Fsearch.ft.com%2Fsearch%3FqueryText%3Dcommercial%2Bproperty%26ftsearchType%3Dtype_news

  • Comment number 81.

    #80

    I have no problem in an investment bank and their workers making zillions. Its partners and shareholders are taking the risk - if it fails well tough - that's what taking risks and aiming for the stars is at. However, it is clearly wrong that a bank is using its ultra low risk retail banking assets to fund or cover risk in its investment banking arm. The glass-segal act should be enforced and also no bank of any description should be "too big to fail". This is partly the fault of banks and egos, but the greatest culpability must surely lie with our completely inept Government whose lack of intelligence, nouse, partisanship and sheer bloody mindedness are there for all to see.

    Its a shame there isn't (YET) an offence of criminal political and economic stupidity.

  • Comment number 82.

    78. Clive of India

    RBS is a company operating in the same arena as GS. They have directors and fund managers on contracts that state a commission based on your and/or your departments success.

    So lets say you are a fund manager at RBS, you have cleverly invested clients funds in Falklands Oil, Russian Gas and GSK and they all paid off handsomely. Your investors think that you are the dogs. The funds you manage paid your bank a 2% management fee and a 20% performance bonus and thus have made the bank £100 million in profits this year.

    RBS want to limit your bonus because the tax payer is awfully cross with anyone who’s a banker regardless of their involvement with the crunch and Mr Darling and friends, despite robbing us all blind for years (admittedly to a lesser degree but theft all the same) want to make you a scape goat so they can win a few votes and get themselves a fourth term.

    Do you:
    A: Stay with RBS and take a big hit.
    B: Accept a fat offer from GS for you, your expertise including client list and your next great investment idea.

    GS decides to move to Switzerland and wants to base you over there so you won’t have to pay the new UK taxes at all. It will mean you save several million pounds a year. Would you mind? You can still come home at weekends if you get fed up of the skiing.



  • Comment number 83.

    #80, #76

    I'm not clear why the Government isn't either

    a) selling the RBS Investment banking arm to a third party
    b) setting up a new standalone private investment banking company to
    which those bankers would be transferred. Under this scheme, the
    bankers would be offered partnerships if they invested lots of their
    own dosh

    ..... or aren't these wonderful investment bankers at RBS quite in such demand or so good as to put THEIR money where there mouths are?

  • Comment number 84.

    Whilst the method of paying bankers' so-called incentive remuneration badly needs reform, this will only be effective on a basis which embraces all principal financial centres.

    These special taxation proposals are likely to prove uniquely damaging to UK interests and are bound to cause high-flyers to reconsider staying in the UK.

    HMG (which means every one of us) has an enormous investment in those banks it has assisted. Recouping that investment needs the banks concerned to generate the maximum profits consistent with prudent trading. Irrespective of public clamour for punishing bankers, rocking the boat now could be extremely costly to us all.

  • Comment number 85.

    Clive, post 83. I agree wholeheartedly with your views.

    If the RBS Investment banking team were such superstars why haven't they or the government done either of these or someone else come in with an offer to buy RBS's investment bank?

    Perhaps they aren't as great as they think they are.

    All extra ammunition to the don't pay the bonus let them walk people.

  • Comment number 86.

    Why would it be bad for the UK to lose some banks to foreign rivals,
    What exactly have they done but cost us billions.
    If any other industry had wanted bailing out to the tune of this amount what would the response have been then?

  • Comment number 87.

    #78

    Thanks for that.

    Given your scenario, I would happily move to Switzerland myself, although some would no doubt prefer to stay. I accept that MOST bankers have done nothing wrong at all. Some though were extremely imprudent, no doubt egged on by their directors and their prospective bonus.

    Retail and investment banking essentially don't mix at all, their ethos and modus operandi are completely different. That is where the problem lies.

    The Government who are royally to blame in all of this and Gordoom with his awful tr-partite (... who's turn is it to regulate today .. not me!)
    model is the prime mover. Britain's worst-ever chancellor and PM.

    Most see banks as staid, boring and virtually risk-free, which is what
    they should be, very modest bonuses due if at all.

    Investment banks, yes fine, with big bonuses for success, but liquidation if they fail. What angers people is that by mixing the two, you end up with a conglomerate, such as RBS, which starts to behave like an investment bank even in its retail arm and makes silly domestic and commercial loans. Separating the two types of banking should keep EVERYBODY happy.

    Lastly, whilst I have moaned a bit about a perceived lack of qualifications in some areas of banking, this is nothing compared to Brown and Darling and other members of the Government who I suspect on previous performance would be barely able to open a deposit account without messing up.

  • Comment number 88.

    Post 86 we all know what the answer has been to other industries who have wanted much less money.

    Jaguar Land Rover & LDV were refused. There was no money for Corus in Redcar. No money to keep car production in the UK for Peugeot so the 207 went to Slovakia.

    Anyone wnat to guess what will happen to Vauxhall's van plant in Luton if either it or the plant in Belgium have to shut which almost certialy one will?

    Pretty much everyone in any sector outside of banking could list a similar number of "thanks but no thanks" responses from Gordon Brown as Chancellor or as PM.

    It does beg the question just what hold have the bankers got over him?

  • Comment number 89.

    Just as an aside, is anyone else surprised that members of the big four auditors have been silent on these boards?

    Not only am I surprised that the rotten banks director's are not in court yet, but their auditors too. I mistakenly thought that auditing compliance meant that the client had in fact been found to comply with all financial legislation and exercised due prudence on behalf of the shareholders. It would appear that what it really means is that the auditor has been compliant to the clients wishes and has pocketed much money to facilitate this.

  • Comment number 90.

    carrots @ 49

    "if you were a hotshot fund manager earning your bank a cool 75 mill a year we all know you would stay and pay your taxes. The trouble is Sagamix the guys with the actual ability to do this job won't"

    City stuff - in the Front Office anyway - is a piece of cake, Carrots. I lucked into it for a few years. Couldn't believe how easy it was. Made more money in my first year there than I'd earned working much harder for the previous seven years (put together) in something else. Falling off a log is quite tough by comparison, believe me. It's all propaganda. They're going nowhere, these guys. There's a ton of people who can do what they do for much less. They'll be replaced in a heartbeat. It's good for a business to get its cost base under control. Why should Investment Banking be any different? Why is Investment Banking the ONLY industry that says "if we DON'T overpay our staff, the business will move abroad". Every other business recognises that the truth is the very opposite ... if we KEEP overpaying in the UK, the business will move abroad. It's propaganda. Don't fall for it.

  • Comment number 91.

    #88

    he will need a job in a few months time!

    If RBS and Lloyds don't help (despite his record in office!) then may I commend JSA to him. Unhappily I am taking advantage of this at the moment and feel he should not miss out on the opportunity, especially since he managed to offshore many IT jobs to India or allowed bogus workers here to solve his imagined shortage and caused mass unemployment in a high skills area. Only Gordoom and his dahling could achieve that.

  • Comment number 92.

    Post 89 just think of all the consultancy fees that the accountants are raking in re the bank and the refinancing.

    That might explain their silence.

    Also they are probably too busy finding legitimate ways of "avoiding" any tax Alistair might dream up.

  • Comment number 93.

    73# good analysis but add two more factors into the mix

    Basel II allowed banks to allocate capital based on risk models designed by the banks themselves - if the models were faulty (and they were) then this simply magnified the problem

    Accounting rule changes and the requirement for banks to mark everything to market meant there was little point in holding loans for long term, it would simply make your profits more volatile. This meant that a rational bank would write loans and then as soon as possible flog them to someone else because in the long term this was the more profitable activity. Not surprisingly once your mindset is to sell loans on, the actual quality of the loans is less important than the price that you can sell them for.

    This govt allowed both Basel II and the accounting rules to go through. The inevitable consequence was to full the fire of short term trading by banks with risk analysis being downgraded

  • Comment number 94.

    It's a first class idea and let's just ignore all the criticisms from obvious vested interest groups.

    Fact. The British tax-payer doesn't want to pay bonuses to people employed by the banks which the tax-payer owns who already enjoy salaries way above the national average.

    Fact. Compensation levels in banking are nothing to do with supply and demand - look at all the unemployed bankers.

    Fact. The state-owned banks only want to pay equivalent levels of bonus to the non-state-owned banks such as Barclays.

    Fact. The banks would not have had such a good year if the tax-payer hadn't bailed them out.

    Fact. A lot of the high profits made this year result from the wall of liquidity thrown at the economy by the government and The Bank of England. With hindsight, the incentive schemes of both state-owned and non-state-owned banks were poorly designed. A monkey could have earned his/her bonus this year.

    Fact. Come April, the marginal tax rates of many of these bankers is going up to 50% anyway.

    Fact. There is so much national debt that any and every half-decent idea to raise more tax or spend less money needs to be seized upon.

    So a windfall tax on bonuses (and high salaries?) (and why limit it just to the banks) raises much needed tax revenue, gets the govt. off the hook in its stand-off with the RBS board over bonuses (pay what you like, we'll just claw it back in tax), is attractive to voters, doesn't affect the long-term competitiveness off the City (it's a one-off) and is extremely fair. High earners should think themselves lucky to have a job at all let alone a bonus at the current time.

    Make sure it applies to capital gains as well as income Alistair. And lets see some "anti-forestalling provisions" too so that all the sneaky tax dodge schemes which will doubtless be dreamt up can't reduce the tax take. Miss this opportunity and lose my vote.

    Power To The People!

  • Comment number 95.

    I just have to ask[ HOW MUCH IS ENOUGH ]what happened to the [cat standard}
    if the gov and the bank of England had kept their eye on the rules in the
    first place ,and not had greed factor we would not be in this mess in the first place,as far as i know the EEC rules state that a bank has to have enough money to cover its debts how come ours did not?
    when i had some money to put into savings i went to 7 building society,s
    and banks ,only 1 said they could meet the cat standard ,the others were
    trading above their means ,i took my money out of the system as i could
    see trouble coming,.

    what i could not understand when it came to the crunch , was that if i could see it coming why could not they ?
    All i did was research the net for idears for the best deal for my money
    but over a few weeks i got the feeling things were changing for the worse
    Trust the banks=NO trust the government=NO

  • Comment number 96.

    I can't wait to see all these bankers pack and leave the City of London to "create wealth" elsewhere. Hopefully it will be outside of our solar system.

  • Comment number 97.

    > I can't wait to see all these bankers pack and leave
    > the City of London to "create wealth" elsewhere. Hopefully
    > it will be outside of our solar system.

    Indeed. It has always struck me that, to make wealth, you
    have to help create some product, like a railway tunnel, or a
    pair of shoes etc. Shuffling abstract figures in a spreadsheet
    or gambling in a zero-sum game is not wealth creation, and
    we have no need for that kind of thing here. If they go,
    make sure they can't come back.


  • Comment number 98.

    A super tax will ruffle feathers - but how else can ALL those who will try and wring more cahs out of the system be caught ?

    Its a joke - The board of RBS claim "market forces" when talking of their own pay rates and bonuses - OK - fair enough BUT if they had been left to market forces in the last 12 months, surely RBS/HBOS would now be closed - with NO Money for any of them other than Redundancy payments from the Insolvency Service at legal minimums.......these banks, as corporate entities, were a few hours from closing their doors - and their ATM's - and ceasing to trade.....where where the cries of "leave us to the market" then - or are their beloved market forces only relevant on the upside ??

    In treply to the "value for money, are they worth it, it's the going rate", banking bonus question - the fact is there is very little one person can do that justifies a six or seven figure payment......they rely on admin staff, HR and logistics that sit below them in the banking system, none of whom get these "glamour" payments. Yet - without the infrastructure, they could not function.

    They have no humility.

    The bailout kept certain banks from closing - and saved others from the tsunami that would have followed - so the likes of Goldman Sachs, who currently whinge that "we got no bailout, so give us our bonus" are simply ignoring what would have happened if the market had got its way.....they were next in line.

    Its a house of cards - fueled in the large part by "money from nowehere" in the form of house price inflation and company percieved value on the markets - paper shuffling exercises that are not viable in the long term - hence the "big adjustments" every now and then.

    Finally, and this relates to Public sector pay as well - No One needs £250K a year.... no one - let alone a bonus of this, or more.

    In reality, this country should regard any salary above £75,000 or thereabouts as exceptional. Go back a couple of decades, and the pay gap - which will always be there - was not the pay chasm it is today. GP's, Senior Teacher, Policemen, Senior Professionals (bank, law, engineering etc etc) would earn perhaps two or three times the national average. Exceptionally four. So today, with £25K being about UK median - £100,000 would be exceptional. Therefore £40 - £80K would be the natural territorry for the higher paid - but there are Council Leaders all over the country earning twice this, and yet they run deficits each year, and fail to deliver the services they are paid to provide !!!

    Todays differentials- where mutliples of five or ten between shopfloor and MD - or bankteller Director - or secretary and Salesmanager - are fairly commonplace, is simply not a long term option IF we wish to live in a civil, inclusive society.

    Someone please explain to me, and then tell the Corus workers in the North East, why 1000+ City bankers - whose industry this time last year was, literally, "bankrupt" - can now be paid £1million EACH in bonuses - on top of already high six figure basics ???

    Shameful they can even consider it, and worse still will be the squeels of pain when the tax bill lands - unless your an accountant, paid to dodge/avoid/defraud the liability as much as possible.

  • Comment number 99.

    Has anyone noticed a correlation between the size of the bonus pools and the amount the banks charge for overdrafts? In the case of RBS, my suggestion would be to call the boards bluff. The government should them grant proxies for the shares it holds in the bank to the customers of the bank so that they can call the directors to account and ensure that the customers are represented on the remuneration policies of the bank. I'm sure that this would stop the problem.

  • Comment number 100.

    I'm not a banker but any ad-hoc, punitive, applies-to-only-one-sector tax leaves me feeling slightly sick.

    If I negotiate a bonus as part of my contract and I meet the requirements agreed then I had jolly-well better get that bonus.

    If you want to apply punitive measures, then apply them to whoever authorised my contract.

    Really, where do people get off advocating interference in a legally binding employment contract? I do not work for air. I work to earn money, to protect my future and the future of my loved ones. No-one has any right to moralise about what I have and haven't arranged with my employer.

    It shouldn't be possible to apply ad-hoc out-of-the blue blatantly discriminatory taxes like this.

    I didn't work my a*se off through school, then university and finally umpteen lower levels of hell, working 18 hour days under ridiculous pressure to have the masses of the country try and take a piece of my hide when they want someone to blame for their problems.

    I am quite frankly sick and tired of the widespread demonisation of the banking industry. Every industry is out to make money and very, very, few can take the moral high ground with any credibility.

    You want to blame someone? Blame the government. They were the ones pressurising the banking industry to make credit easier to obtain. Probably, the banking industry did not need much persuading. However, it doesn't change the fact that the responsibility lies at the top with the people deciding what is and isn't legal.

    And that is not the people who the baying masses are demanding be stripped of their rightfully earned, previously negotiated, cash.

    Oh, and by the way, the whole reason the government encouraged the relaxing of the rules is because avergage Joe Bloggs in his string vest couldn't afford to buy a house.

    Give us credit, give us credit, we can't afford a bigger house, car, whatever. Oh, now I can't pay you back.......

    So why is the banking industry being demonised? Because they supplied a risky but voracious demand at the encouragement of the government????

    The lost billions should be extracted from the politicians. Now there is a bunch of slimy, no-good, overpaid scumbags.

 

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