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Will taxing bonus pools spur lending growth?

Robert Peston | 14:57 UK time, Wednesday, 9 December 2009

For financial markets, the pre-Budget report has been something of a non-event.

Sterling is a little weaker today, as are the prices of UK government bonds.

Alistair DarlingThere's no great surprise there: we've known for months that Britain's public finances are a horror story, and what the chancellor said today neither added or subtracted gore to any great extent.

Or to put it another way, the UK is neither closer or further from losing its AAA credit rating, or suffering a sterling crisis, or being unable to borrow from international investors - or any of the other possible nightmarish next chapters in this epic of Western economies that have borrowed too much.

If business in general is likely to feel a bit let down it is that National Insurance is rising to support increased spending on schools and hospitals rather than to shrink the deficit.

The point is that most in the private sector would like to see the size of the state shrink as a share of GDP from the current high peace-time levels, along with public-sector borrowing, to help create the economic space for the private sector to grow.

As for the new levy on banks that pay bonuses of greater than £25,000, the Treasury estimates that it will affect 20,000 UK-based bankers.

That's a lot of bankers.

The Treasury is calling it a "bank payroll tax" - and says that the 50% tax on bonus pools will not be deductible when banks compute their profits for taxable purposes.

So they'll have to pay their mainstream corporation tax and their new payroll tax.

The tax comes into force tonight and will apply until 5 April 2010.

Interestingly, if banks were to defer bonus payments till 6 April, the exchequer would still receive a lot of extra revenue - because that's when the top rate of income tax rises from 40% to 50%.

So if banks are planning to pay out £6bn in aggregate in bonuses for their performance in 2009, which they are rumoured to be doing, and they were to defer all payment till the new tax year, individual bankers would have to shell out an extra £600m in tax (presumably the Treasury believes that bonuses will be much less than £6bn in practice given that it thinks the 50% payroll tax will raise little more than £500m).

In other words, those banks that are desperate to pay big bonuses have some discretion over whether they pay the extra tax or whether their employees do so.

As one fund manager said to me today, "the Treasury is being bloody clever".

Actually, the Treasury has also made it clear that it may extend the liability period for the temporary payroll tax from 5 April, if other curbs that it plans on banks' remuneration practices are not by then implemented.

Here's one final thought, courtesy of that money manager I mentioned earlier.

He thinks that the payroll tax could be good for the economy, because it will encourage banks to build up their capital rather than pay bonuses, which in turn will encourage them to lend and invest a great deal more, to increase their profitability.

Maybe this is wishful thinking on his part.

But he thinks the tax could encourage banks to play a bigger role in sustaining an economic recovery - because only in doing so will they be able to generate the substantial revenues that will allow them before too long to pay those fabulous bonuses again.

Comments

Page 1 of 2

  • Comment number 1.

    Still arranging deckchairs on the Titanic Al? Far easily to kick the can furhter down the road when it becomes somebody else's problem.

    Get the money printer primed and ready.

    Got gold?

  • Comment number 2.

    Stable door, horse. Gone, too late Darling, by trialling this all over the place, everyone with half a brain has worked out how to avoid it - or was that your intention so you could appear to be tough on the banks thus garnering more support from unions etc.

    A couple of questions though - do the taxes apply to everyone or just banks? For example, say a footballer has a win bonus of £50,000 for winning the Champions League next year - does that fall under the scheme? If not why not?

    If it is just the banks that are affected, and not all the other businessmen who regularly get golden hellos and golden goodbyes, is it all the banks or just those who were implicitly supprted by the government? What about Standard Chartered and HSBC who as far as I recall did not need government money - are they to be taxed too?

  • Comment number 3.

    It's all window-dressing. The banks will still be able to pay what they want, and to whom, in many other ways than as a "bonus".

    They'll call it an expense incurred, refund made, overtime, payment for days in lieu, holiday owed, etc, etc.

    Alitair Darling won't see, or be able to challenge, a banker's payslip which says something like "Time Owed - £100,000".

  • Comment number 4.

    wishfull thinking. its likely only to lead to human capital flight.. permanently reducing the productive capacity (and tax take) of the uk for the forseable future. anyone who thinks a 67% tax rate makes sense or is sustainable in a competitive world ?

  • Comment number 5.

    Taxing bankers would not be anywhere near as much of an issue if Mr. Peston hadn't incited such hatred. I think all of this banker bashing by Mr. Peston has gone far enough and is fairly rich coming from someone who works for a taxpayer funded organisation through the licence fee. So I say make the BBC a commercial enterprise, cancel the licence fee and halve Mr. Pestons fatcat salary to help make it viable !

  • Comment number 6.

    3: Ed Dixon

    IIRC, footballers have not been funded from the public purse to the tune of billions of pounds.

  • Comment number 7.

    This whole episode is pathetic. Trying (and succeeding)in grabbing headlines by sticking the boot in to a few thousand bankers just illustrates the government's inability (or maybe its a deliberate policy)to grasp the seriousness of the situation our economy is in. Maybe if they weren't going to be able to off-load this mess to the Tories in a few months time they might have started dealing with the real issues and not just taken the opportunity to divert attention to side-issues.
    I hate the bankers who are still collecting huge bonuses as much as anyone else, but they are definitely being used as a convenient "scape goat" in all this - what about all those frightfully clever people who were keen to take all the "liars loans" and speculate in the property market - they all played their part as well...........

  • Comment number 8.

    Why does he assume only £500m collection? i dont get it. GS's London bonus pool must be at least c$5bln - and thats just one bank? it doesnt add up.

    It's a ridiculous thing to do anyhow - populist without any fiscal benefits behind it. Way to destroy the financial services industry. Foreign banks and funds who set up in London provide hundreds and thousands of jobs at all levels and spend a lot of money in the economy. The Swiss must be rubbing their hands together.

  • Comment number 9.

    It's the naivety on the part of Mr Darling and his advisors which is so pathetic - do they really honestly believe they'll collect much - if anything - with this populist one-off tax which any part-qualified accountant could advise on how to easily avoid ? Caledonian Comment

  • Comment number 10.

    While it is somewhat (if not completely) evident you have your hand in the back pocket of every Labour cabinet minister, for once, I beg of you to shine an objective light on proceedings. Or at least one of common sense.

    This is a populist agenda. You and I both know that bonuses will be paid out, one way or another, and that this so called "tax" is but a drop in the ocean of trying to curb our ever expanding deficit.

    Darling's insistence to tax is juvenile, preposterous and most of all designed to "take" from those that have supposedly caused the crisis we are in. Yourself, Darling and Brown have been at the forefront of this tabloid-esque agenda of scapegoating an entire industry, without ever highlighting failures elsewhere.

    Darling's inability to put the country over his career is indicative of his continued push to tax an economy out of recession. If we consider the Eurozone in the run up to 1999, the best performing countries whilst adhering to the Stability and Growth Pact were those that focused on expenditure based reform, i.e. cutting spending. Every semi-decent economist knows that taxing the populous is idiotic, yet you don't seem to pick up on that.

    Sometimes it boggles the brain doesn't it Robert, but then you wouldn't care?

  • Comment number 11.

    This is political, pointless tinkering.
    Yes, we all despise the fact that bankers are able to use our money to create fabulous wealth for themselves. This tax will not stop that, but this government nor any other in the foreseeable future will make any significant changes to the status quo.
    We need to redress the imbalance between earned and unearned income. Realistically the only way to do this is by taxing excess wealth and shifting the income tax burden from earned income to unearned income.
    We're all doomed.

  • Comment number 12.

    Oh aren't the bankers all clever an cocky about how they plan to avoid this tax.

    ....it's a shame they weren't so clever when they were busy packaging up differently rated mortgages to sell on as a single AAA entity.

    With regard to the comparison to other areas (namely footballers) - well there are several factors which are different.

    1) Footballer have a short career - it's normally over by 35 - bankers work until they have made enough money so they don't have to.

    2) Footballers have skill, I could make the same investment decisions as a 'benchmark hugger' or any of the highly paid fund managers who managed my ISA to a £45 profit on £4000 in 5 years! However I can not bend it like Beckham nor can I run 7 miles as the average premiership game requires.

    3) Footballers values are set by their advertising and 'crowd pulling' powers. Bankers make money from charging to lend money they have made from us in the past. People do not pay £55 to watch a banker press the 'rebalance' button on his screen 50 times a day, but they do pay to watch Drogba, Lampard, Terry etc.

    4) There is some national pride in having a good football team and league - there is very little national pride in having a good banking system especially as many banks are effectively 'non-national' these days. Footballers win prizes and competitions, investment banks make up their own awards and prizes and award each other (it's true, no joke)

    5) Football is real - I'm sure their wages would fall if we discovered that matches on Saturday were actually CGI generated and they couldn't do the things they appear to be doing - however this is exactly what banking has done.

    However, after saying all that - sure we can go and look at footballers next. They too avoid a lot of tax, but there is a very sharp tiering in football and there are only a few top players who get mega salaries.

    ...whilst we're on football, a lesson for bankers thinking of leaving the country in a huff. That's what Ronaldo thought when he went to Real Madrid - I'll save tax as well as getting paid more - and what is La Liga facing now? - that's right a strike because there are proposals on the table to tax the highest paid footballers in Spain as it's currently running with about 20% unemployment rate.

  • Comment number 13.

    5. At 3:44pm on 09 Dec 2009, TheBorg wrote:

    "Taxing bankers would not be anywhere near as much of an issue if Mr. Peston hadn't incited such hatred. I think all of this banker bashing by Mr. Peston has gone far enough and is fairly rich coming from someone who works for a taxpayer funded organisation through the licence fee. So I say make the BBC a commercial enterprise, cancel the licence fee and halve Mr. Pestons fatcat salary to help make it viable !"

    Oh classic - can't justify your own position so lets point elsewhere......

    I think considering Mr Peston has provided us with the biggest story of the decade (the Northern Rock collapse) he is worth whatever he gets paid by the BBC - he is in fact the only reason I am paying my TV license!

    Sour grapes perhaps?

  • Comment number 14.

    #5

    I am sorry but I cannot let this go by...

    There are many out there furious with bankers who don't read this blog.

    If you have a problem with the BBC then stop using its web site.

    Off you pop!

  • Comment number 15.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 16.

    Writingisonthewall, your ignorance is stunning it really is, settled before I even need to move on to "Footballers".

    You complain that banks failed to highlight the risk associated with "certain AAA assets" - do you even know what that means?!?!. Ratings agencies such as Moodies, Fitch, S&P are the ones that rate such assets.

    I beg of you, please actually take time to understand something rather than posting idiotic foundation-less rants about things you don't understand. It means that THEY (and NOT the banks) are the ones responsible for claiming that Cleatus in Alabama's mortgage as the same associated default risk as the GERMAN GOVERNMENT.

    If you want to do some extra reading, consider Greenspan, ratings agencies, US mortgage approval legislation and the FSA. Come back to me when you've done that reading, then I'll bother responding to the rest of your gibberish.

    No, I am not employed by the City - I am an economist.

  • Comment number 17.

    11. At 4:38pm on 09 Dec 2009, Wardy29

    That seems perfectly sensible - I mean do people really think we can all live off 'un-earned income'?

    Who is going to do all the work then? - the fairies?

    What a lot of people miss is that society can function without private banking (the state would have to provide resource allocation) but banking cannot function without all the working people generating the wealth for the banks to extract in the form of interest.

    If we all stopped working tomorrow - the banks would have nothing and we would have what we grew / made ourselves. Seems like they need us more than we need them - and people should not forget that, nor be fooled by threats of brain drains and prolonged recessions - which could happen regardless of taxation policy.

  • Comment number 18.

    Fairly cute move by AD...

    -It may appease everyone on the street 'bashing bankers',

    -May put the banks in a (sort of) squeeze with their employees re who pays the tax,

    -Isn't significant enough to encourage migration from the City.

    If only they had engaged brain 12 years ago think of what might have been achieved.

    What was it we were told regarding the end of 'boom bust' politics again?!

  • Comment number 19.

    Mr Peston wrote:

    'For financial markets, the pre-Budget report has been something of a non-event'.

    Perhaps so, but not for the average working Joe or Jane it hasn't.

    I am a self employed working Joe, husband and father of three, and here is a memory from some years ago.

    One Christmas Eve in the early 1990’s my last job of the year was to check the condition of a recently repossessed terraced property.

    On entering I noted that the large items of furniture were still there, sofa, wardrobes, beds, freezer etc, but personal possessions and easily portable items had been removed.

    Last on the list was a check of the roof space area and water tanks.
    In the middle of the roof space was a pile of ‘things’ covered by a blanket. I lifted the blanket to reveal the kid’s Christmas presents.

    Whoever had been repossessed had presumably ignored, or not realised the gravity of the situation, and had to leave in a hurry. I knocked on other doors in the street in an attempt to find out where the previous owners had gone, …… no one knew.

    I have seen the consequence of irresponsible financial lending.

    I have seen anxious children’s eyes, unable to understand why their security is about to vanish and the meaning of the word destitution.

    I have seen the usual residue of family life scattered across a terraced house floor and pictures of sporting hero’s and school achievements, still pinned to a child’s bedroom wall.

    So consider this:

    The banks have taken Government money to survive.

    The Government increases tax and cuts public sector jobs to pay for this.

    The extra tax and/or loss of your job means you can no longer keep up with your mortgage payments.

    The bank in receipt of the government money then repossesses your house.


    Now I reckon it wouldn’t make a jot of difference which political party was, or will be in power. There will be increased taxes and public sector job losses.

    But before the average working Mr & Mrs & kids lose their homes, think on this.

    If what has gone before to get to this point is unreasonable, then it absolutely must be stopped from occurring in the future. Or all that sacrifice being made by the average working Joe & Jane will have been for nothing.



  • Comment number 20.

    11. At 4:38pm on 09 Dec 2009, Wardy29 wrote:


    We need to redress the imbalance between earned and unearned income. Realistically the only way to do this is by taxing excess wealth and shifting the income tax burden from earned income to unearned income.
    --------
    All the Pensioners I know of survive on unearned income, or not survive in the main nowadays.

  • Comment number 21.

    One of things that constantly surprises me about all this (job losses and tax rises), is that no politician, or journalist for that matter, considers the effects on the average working person. It seems to be taken as read, that it's just hard lines.

    The only people who seem to care, are those who post blogs.

    J.D.

  • Comment number 22.

    #12 writingsonthewall. Sadly it is not so. Sport (and especially English football) has long since been captured by the money men.

    Leveraged finance has enabled all kinds of rich people to buy football clubs with either no or limited recourse to themselves. Think Manchester United or Liverpool as prime examples.

    They are supplemented by a whole host of probable money launderers (no doubt any mention of their names would be enough for this post to be deleted).

    This money has enabled footballers to be paid a lot of money. In most cases they are not paid for their skill but for their advertising and marketing potential - something else that is decided by an offshoot of the finance industry.

    As with banking the regulatory authorities have been captured and rendered ineffective. Thus you have players convicted of acts of violence who are allowed to continue their careers unimpeded by any standards of decency. You have a man alleged by Amnesty International to be a human rights abuser (I beleive he is alleged to have ordered some 3,000 people to be locked in shipping containers until death) - but no problem he passes the FA´s fit and proper prson test. You have a man who has admitted ordering a F1 racing driver to deliberately crash, but that is no impediment to his significant role at QPR. You have a large shareholer of Arsenal who has been up to things so awful it would cause a strong man to weaken at the knees, but hey he´s got money so what do we care.

    You have alleged systemic match fixing corruption on a pan European level, but its only a sport, a bit of a laugh.

  • Comment number 23.

    # 12

    "...whilst we're on football, a lesson for bankers thinking of leaving the country in a huff. That's what Ronaldo thought when he went to Real Madrid - I'll save tax as well as getting paid more - and what is La Liga facing now? - that's right a strike because there are proposals on the table to tax the highest paid footballers in Spain as it's currently running with about 20% unemployment rate."

    wasn't Ronaldo a non-dom?

    what was that about needing to do the reading first??

  • Comment number 24.

    16. At 4:52pm on 09 Dec 2009, Objective wrote:

    'It means that THEY (and NOT the banks) are the ones responsible for claiming that Cleatus in Alabama's mortgage as the same associated default risk as the GERMAN GOVERNMENT.'

    This is where I think there has been criminality involved.

    Let me ask you, do you really think the ratings agencies can't tell the difference between the risk from a NINJA loan and the German government?

    Someone was telling lies!

  • Comment number 25.

    Actually he could have done much better, had could have taxed MPs on their expenses and all the 'clever bonuses' they get at election time. I am willing to be corrected, but I think that Labour MPs (well any that survive) will even get a bonus simply for moving from Government benches to opposition benches after the next election.

    As I said elsewhere, Bankers are but the symptom, the disease is New (or even Old) Labour, and we've suffered it before in my lifetime, hopefully never again.

  • Comment number 26.

    20. At 5:00pm on 09 Dec 2009, DevilsAdvocate wrote:
    All the Pensioners I know of survive on unearned income, or not survive in the main nowadays.

    Very good point DA, what about those who simply can't increase their income in any way shape or form. The price for this financial fiasco should not be counted in £'s but in people's lives.

  • Comment number 27.

    DrG, so tax the ratings agency employees? Make them the public figureheads of the financial crisis.

    And do I know? Well no, I don't know, and you certainly don't.

  • Comment number 28.

    #16 Objective. So how do you think the ratings agencies go about doing their jobs? Is there any chance that they rely on information and advice received from banks?

    Why would ratings agencies want to deliberately assign false ratings to specific products?

    Do you think there is any chance that ratings agency analysts are in turn sweet talked by banks and threatened by banks? I have been in the room when ratings agencies have come up with ratings that they have been told to produce. You probably won´t find this particular technique detailed in too many text books, maybe that is a problem with economists - altogether too trusting, and consequently another failed part of a failed system.

    The whole system is corrupt - it is purposeless seeking to seperate out component players for the allocation of blame.

  • Comment number 29.

    I wonder why the government doesn't crackdown on the off-shore schemes (typically pension funds in Jersey) that high income earners use to drop income tax liability completely? It's always seemed morally repugnant to me that very high income earners can use tax relief on pensions and cash from their bonuses to effectively recoup all income tax paid to the government and stick it into one of these funds.

    I also don't think this is going to hit mega earners very hard. Non-trading and support staff will get screwed three times - once via the bonus pool tax, once by the bank weighting the remaining money in favour of star traders, and then once again by the nat ins and income tax as the bonus is paid via their salary.

  • Comment number 30.

    I've another wheeze bankers can use to avoid some of the tax. The 50% tax only applies to discretionary bonuses. So, rather than simply increase pay, alter employment contracts to pay a MANDATORY bonus and a smaller dicretionary bonus.

  • Comment number 31.

    27. At 5:15pm on 09 Dec 2009, Objective wrote:
    DrG, so tax the ratings agency employees? Make them the public figureheads of the financial crisis.

    Who the figureheads are is largely irrelevant.

    What isn't irrelevant are the poor souls that are going to pay a high price, the pensioners, the average working Joe & Jane & their kids.

  • Comment number 32.

    I feel like I am living in Alice in Wonderland. The government and bankers still don't really get this simple fact. If hundreds of billions of money had not been taken from the future tax payments of the public, there would be no banks and no financial system. This is the only reason most banks are surviving now. For them to make huge profits off the carry trade provided by a falling dollar and artificially low interest rates is obscene and shows yet again how the market has failed to provide a solution.

    And then Darling kicks the public in the teeth with a NI rise. This of course will only affect the low paid - it will not affect anyone earning over about 35k.

  • Comment number 33.

    Dempster

    Your heart is in the right place and I respect you for it.

    But posting on a blog isn't going to achieve anything (other than marking you out as a troublemaker)

    It was incredibly difficult for the original labour party members to enter parliament (and I'm most certainly not a labour supporter) and they were fairly quickly subverted.

    The establishment in whatever the current form has NEVER represented the people (it seems to be a fairly recent idea that the ruling classes have ever had anything other than their own self interest in mind).

    If you truly want to change anything you have to do something other than typing on a keyboard.

    We don't have guns, can't protest without a permit and risk random shooting by the police using unreasonable force so the only way forward is to compete on the same battlefield with the same weapons.

    It's called a political party and it only costs £150...


  • Comment number 34.

    Dr G and Writingsonthewall
    I do read this blog and cannot believe the hatred and lack of a balanced view that comes out of it, principally from people like yourselves - just thought i would add a leveller - which I still think is justified !

  • Comment number 35.

    #19 Dempster

    You must have felt absolutely awful when you found the presents.
    That is the reality of the activities of the bankers - the stuff of real nightmares, the fear of where they will go, how will the stay safe, the tears.
    And don't forget the wrecked marriages, wrecked by debt so convincingly sold by the banks (we've all experienced that), the sleepless nights and ill health of those clinging on by their finger nails, too frightened to open the mail or answer the phone.

  • Comment number 36.

    27. At 5:15pm on 09 Dec 2009, Objective wrote:

    'DrG, so tax the ratings agency employees? Make them the public figureheads of the financial crisis.'

    The ratings agencies aren't the ones with their hand in my pocket!


    'And do I know? Well no, I don't know, and you certainly don't.'

    Don't know what? The difference between a NINJA loan and the German government, or who was telling lies?

  • Comment number 37.

    So in order for the bankers to get the same net Bonus as before (all they will care about) they will have to increase them and the bank give more money in taxes, further weakening the Banks position? or on a lighter note from the headline does the tax only apply to their swimming POOLS !!

  • Comment number 38.

    # 15 wrote "Only snotty overpaid bankers "
    # 12 wrote "Oh aren't the bankers all clever an cocky "

    Posts obviously borne from clear concise objectivity !!

  • Comment number 39.

    #12 - writing is on the wall - Some great posts as usual - keep it up :)

    For people that don't seem to understand why there is bad feeling towards banks and to those of their employees who are very high paid for me there are two main reasons:

    1. No other industry has a guarantee from government in the way banking does - even the banks that didn't recieve recapitalisation have benefited from an implicit guarantee which has kept their borrowing cost down. And as for RBS and HBOS - well let me put it this way Woolworths workers won't be getting bonuses will they!!!! (PS As well as guarantees the actual cash borrowed by HMT on bailouts so far is double the entire annual education budget for the UK)

    2. The industry seems to be run for the benefit of its employees not its shareholders or customers. The city preaches the focus on increasing shareholder value yet under this measure all banks have performed poorly in the last few years - ie destroyed shareholder value - how then can we believe that there is so much 'talent' in the industry and that large salaries are justified?!

    Oh and another thing...

    Personally I was disappointed there will be no change to Capital Gains Tax - its still at 18%!

    A low paid worker effective pays a top rate of tax of 31% (20% Income tax plus 11% NI) - it would be even more if you factored in Employees NI too!

    Whereas a wealthy investor pays only 18% on any gains in their investment portfolio!

    This is blantantly unjust - these taxes need to be brought into line as Vince Cable has said many times.

    PS All you bankers out there don't worry there are so many loopholes in the bonus tax its crazy - you can take a backdated payrise (any large payrises should have also been included!) Also its only applicable to the end of the financial year so the bank can just defer your bonus until 6 April 2010 and loan you some cash in the meantime! The whole tax is just a token gesture - there needs to be proper tax/insurance paid by the banks which compensates the risk the taxpayer is on see link below

    http://www.guardian.co.uk/business/2009/dec/08/tobin-tax-banking

  • Comment number 40.

    35. At 5:29pm on 09 Dec 2009, copperDolomite wrote:
    'You must have felt absolutely awful when you found the presents'.

    Oddly enough I was getting pretty numb to it. I went off home to a nice warm house, the smell of mulled wine and christmas trees.

    When it all gradually came to an end around 1996, I said to myself and others, 'I bet this country's learnt it lesson, and we won't see the likes of this again'.

    How wrong I was.

  • Comment number 41.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 42.

    Maybe the banks, if they really, really wanted smart people could talk to Susan Greenfield, head of the Royal Institute - looks like she may be made redundant due to the downturn...as reported in the Guardian.
    Or maybe she is too smart for the banks...

  • Comment number 43.

    #30 'I've another wheeze bankers can use to avoid some of the tax. The 50% tax only applies to discretionary bonuses. So, rather than simply increase pay, alter employment contracts to pay a MANDATORY bonus and a smaller dicretionary bonus.'

    Ha,chuffing,ha - thank you - I presume this is in the small print of the Pre Budget report announcement - of course many of the bonuses are already contracted and not discretionary and if not I bet that's what has been put in place in the last few weeks - its a vote winner of no consequence to the bankers so they will complain a lot and still receive their bonus and the banks will pay nothing to the govt - all a big sham - typical.

  • Comment number 44.

    Am I correct when I calculate the interest due on the £175bn debt is £21bn at the 12% agreed,and the total interests due on all borrowings exceeding,that debt !

  • Comment number 45.

    Seeing the bankers squirm through comments here is giving me a warm feeling in my heart. I really am sorry that adding another property to the international portfolio is now off the cards for many of them, and that instead the money might go to helping our businesses throughout the UK.
    Most average earners will not mind some additional taxation for the greater good, which just shows you how selfish and greedy the bonus hunters are. Please, go to your foreign countries, whatever the cost to the country morally we are better off without you.

  • Comment number 46.

    danj180

    I agree with you entirely - not only is the taxation of wealth trivial compared to income, it's also grossly unfair for the bottom tier of society - their monetary worth is almost entirely income based.

    It's also immoral, I think, the practise of the middle classes owning multiple houses to rent and then viewing that as their pension. To me, those houses that are buy-to-let (which are typically the homes that the working and lower middle classes should be buying) deserve to be taxed so that the buy-to-live can compete on a level playing field, and not discover that they are renting those homes to fund the pensions of the wealthy middle and upper classes..

  • Comment number 47.

    It seems to me that there is a long term structural issues with bonuses - in that they are assymetric calls on the value of a trade. If they go up the trader gains hugely, if they lose then the trader may lose his job but has little downside risk. This needs to be adjusted by having a portion of bonuses held and released over time.

    Secondly in the last 12 months the huge quantitaive easing has created risk free earnings for banks as they simply arbitrage the money from the govt and lend on to the other banks or buy the govt bonds! either way it is not risky and has created a windfall at the expense of tax payers!! Is it fair that they should reap huge rewards for this ! the answer must be a resounding no!

  • Comment number 48.

    2. At 3:34pm on 09 Dec 2009, Ed Dixon wrote:

    'Say a footballer has a win bonus of £50,000 for winning the Champions League next year - does that fall under the scheme? If not why not?'

    I think you're missing the point... The scheme is to tax bankers bonuses, above a certain level, that relate to a period when the banking system would have collapsed if tax payers had not stepped in and rescued it. That means two things:

    1. Any such bonuses paid to bankers are arguably for failure not success.

    2. The scheme should not apply to the payrolls of football clubs, or any other business for that matter, as they haven't enjoyed a taxpayer bailout.

  • Comment number 49.

    23. At 5:06pm on 09 Dec 2009, Kudospeter

    I can only work with the information given. I believe he would not qualify for non-dom status as he was in the country for more than the alloted days.

  • Comment number 50.

    38. At 5:38pm on 09 Dec 2009, TheBorg

    Do you think that opinion is formed because I actually work with them?

  • Comment number 51.

    Is there any other country in the world other than the UK where people are so viciously envious of other peoples' earnings? What a sick and sad society. If it wasn't the bankers, it would be someone else. Such a corrosive obsession with money and an incessant whinging about how 'average people' are so worse off. Do any of you bother for a second to take a critical eye at the politicians that are running your sorry little country into financial ruin? Do any of you ever stop to think how your addiction to shopping, buying things and credit means that your are the largely the architects of your own collective demise? Or are you going to blame the credit card companies when you all default on your cards rather than yourselves for getting indebted up to your ears? The whole bonus culture is quite flawed, but it is an insignificant side show to the problems you all have collectively which are nothing to do with the bankers and more to do with your own lifestyle and values. Reflect Britain before its too late.

  • Comment number 52.

    16. At 4:52pm on 09 Dec 2009, Objective wrote:

    "No, I am not employed by the City - I am an economist."

    Well that explains a lot.

    I presume you are well aware of the tendency for profit to diminish and that the source of profit is labour surplus value according to Marx.

    So could you enlighten us to explain an alternative to this theory and explain where profit is actually generated?

    Remember you canot justify it through 'risk taken' as you have just explained the system did not understand risk (regardless of who was responsible for assessing that risk)

    Could you also explain what the banks should have done when they had saturated the lending market but required new markets to open up in order to satisfy shareholders - surely the logical step was to start lending to more and more risky candidates?

    Can you also explain how regulation will be paid for when the banks have ammassed such wealth and power they can lobby governments for chnages to the law and employ clever lawyers to circumvent the legislation?
    Surely the desire is to reduce Government, you will need a 'super sized' reulator with virtually unlimited resources to handle the job.

    I am very please that we have an Economist in our midsts because there is a lot of explaining to do and there are some really difficult questions bloggers are looking for the answers to.

  • Comment number 53.

    Has anyone else noticed, tucked away on page 28 of the pre-budget report, a table listing the UK's net worth? Currently 22% of GDP it gradually declines and is predicted to go negative by 2012, reaching -7% by 2015.

    Does this mean what it appears to mean? Will the UK be technically bankrupt by 2012?

  • Comment number 54.

    Can anyone answer the following question: why is it more intelligent to tax bankers rather than banks themselves? This tax on bonuses is a political move. It would have been much more effective and intelligent to tax the reason for those bonuses, which is the blatant fact that banks are making billions as usual thanks to an inefficient financial system. From stupid charges on savings accounts to the mega merger deals where banks get paid millions, there are hundreds of ways to tax the banks themselves. And do not get me started on the tax loopholes that the banks themselves exploit to lower their tax bill!!

  • Comment number 55.

    "the banker tax unfairly targets the finance industry"

    ...well ys, it does, but surely any talented staff in the finance industry are so appalled by the tax they could simply move industry.

    There is a lot of talk of "flexible employees" being a help in a recession - surely talents can be taken to other areas within this country i.e. not having to go abroad.

    ...that is of course unless it's all about the taxation and not the actual money. For example re-training as a teacher might seem appealing until the banker see's the pay and conditions and lack of bonus. However on the bight side you won't get taxed heavily on the bonus you don't get.

    What about social work - they are desperate - I'm afraid it's not the hours and office work you might have been expecting and the pay isn't great either, but if you do get a bonus it will not be over the £50k amount I can promise you that.

  • Comment number 56.

    To all:-

    Why oh why are we still going on about the bankers bonuses? Okay so its 'fun' to bash them but it is a VERY convenient scapegoat for the government. Why isn't the main issue that the UK structural deficit is NOT being addressed as all this £500m here or there is irrelevant! Dont fall into the trap of getting sucked into this non-discussion.

    Remember that the bonus pools were already being taxed so its just the additional tax being raised which is why its 'only' £500m.

    What we need is:-
    A FAIR and progressive tax system
    Incentives for manufacturing and other activities that generate wealth (not convinced this includes finance)
    Reduction on dependence of non-renewables
    A sensible redcuction in public sector bureaucracy.

    RANT OVER

  • Comment number 57.

    52. At 7:24pm on 09 Dec 2009, writingsonthewall wrote:
    16. At 4:52pm on 09 Dec 2009, Objective wrote:
    "No, I am not employed by the City - I am an economist."
    'Well that explains a lot'.

    Let it go writings, you're in danger of looking vindictive.

    Put your talents to better use.



  • Comment number 58.

    Robert,

    I have an issue with your piece played on radio 4 tonight - in it you described the finance industry as a 'wealth generating' one.

    Could you explain exactly how the finance industry 'generates wealth'?

    The last time I checked they use their position of great wealth to restrict the resources that businesses need - through the medium of money - and then extract a payment for that (interest) in order to further increase their wealthy position making it easier next time.

    ....or have they invented a 'wealth making machine'....those crazy financial wizards?

  • Comment number 59.

    #51. namuncura
    Ah, justice and not envy!
    I went into HBOS with a friend about 7 months ago. While we waited in line for access to the ATM inside the shop, two of their staff approached and invited us to apply for a loan. I lied to them in an attempt to make them go away. If I want a load I'll ask for one.
    The lie was this: "I don't have a job and am on the dole."
    She, very pleasantly replied that perhaps I might want to give it a go and I shouldn't pre-judge their criteria as to who they would lend to!
    A bit of an assumption to assume we all loaded ourselves up with debt, that. Sorry kid, I've more than enough brains to keep me safe from banks and the marketing guys. There are plenty of us smart folk out here in the real world. My biggest regret is that anyone ever borrows at all. You are right in that the public, and businesses in every sector need to learn to stop borrowing money, including the banks themselves.
    If the bankers think they can bankrupt another country and the public will welcome them, then I will gladly help the bankers pack up their shirts and socks.
    Now...I want the bankers in this counry to learn that I, as a tax payer am not willing to bankrupt the future of this country in order that they take stupid risks and perhaps make some hay along the way. Their business models need to change, or they will be left to drown with no one to rescue them a second time.
    The banks need to understand that by their behaviour they are judged in this and every society. That is not envy, it is social intelligence.

  • Comment number 60.

    The City is laughing at Darling because it will be so easy to avoid! Firstly he has exempted a huge number - including any with "guaranteed bonuses"! Second there are lots of other ways to avoid including increased basic pay (lots have done already), delaying payment to April (duh!!) and in the meantime giving them all an interest free loan!. To stop Darling becoming a laughing stock, he needs to immediately bring in anti-tax evasion measures which would fine any of these actions (and all others) with 10x the tax evaded - this should be paid by ALL the people involved including the tax evasion accountants, lawyers and advisers. Prison for any who don't pay the fines promptly. Also need to include tax on their offshore accounts and other tax evasion schemes. Will raise Billions and solve our budget deficit without raising taxes on hard working low paid workers.

  • Comment number 61.

    #59 "Now...I want the bankers in this counry to learn that I, as a tax payer am not willing to bankrupt the future of this country in order that they take stupid risks and perhaps make some hay along the way"

    Unfortunately, Labour and now Cameron have refused to break up the "too big to fail banks", so if it happens again YOU WILL BE BAILING THEM OUT.

    Unhappily, the bankers who have seen their bonuses taxed at 50% may well decide to increase their next bonus to compensate by being even MORE RECKLESS!

  • Comment number 62.

    As other commenters have noted bonuses will be easily paid out via offshore companies. All that will happen is that another layer of accountants will spring up.

    Is this what the government means by wanting to encourage the creative industries?

    There will be lights on this evening whilst the tax avoidance schemes are finalised. There will still be time to nip to the pub before closing time.



  • Comment number 63.

    Tax avoidance might lead to loss of projected tax receipt from the bonus tax, but don't worry, our esteemed chancellor and the HMRC's best brains are on the job.......

    so its champagne all round at the bankers bash!

  • Comment number 64.

    The money being raised here is a drop in the ocean compared to our national debt. It does however send a signal to our only world leading sector that they're not as welcome here as they once were. It also seems to send a message to the world that we are a high tax economy - I guess Labour are showing their true colours now!

    I wonder what Mr Peston's opinion on the damage this will do to our country.

  • Comment number 65.

    #61

    I know, and I'm not very happy about it. No one should be.

    Still, if the banks try some tax dodge, there is no reason why another means of taxing them will be brought in.

    Given the 10% tax on profits generated from new patents, perhaps the rich, bright things might leave their banks and give inventing a go - shouldn't be too difficult for them to do, given they are so bright, and so driven by low tax and high profit potential.
    Better that than the thought these morally bankrupt bankers make a bee-line to the nearest teacher-training course or social work department.
    Sorry WOTW, but those two suggestions don't appeal to me. A banker teaching a bunch of teenagers maths, and even citizenship makes me shudder.

  • Comment number 66.

    I believe the statement that the tax unfairly targets the banking industry is somewhat astonding. The banking industry is currently supported by taxes unfairly targeted to the taxpayers.....whose money the banks mismanaged....a nice way of saying they stold the money. A guillotine would have accomplished much more than the tax. I didn't notice but is there a budget item designated for prosecution of financial services and affiliated industries.

  • Comment number 67.

    53. At 7:28pm on 09 Dec 2009, AbsentMindedProfessor wrote:
    Has anyone else noticed, tucked away on page 28 of the pre-budget report, a table listing the UK's net worth? Currently 22% of GDP it gradually declines and is predicted to go negative by 2012, reaching -7% by 2015.
    Does this mean what it appears to mean? Will the UK be technically bankrupt by 2012?


    Answer: No; not as long as we have our own currency and Mr King undertakes Quantitative Easing.

  • Comment number 68.

    To my fellow bloggers

    Something occurred to me having read the various blogs on this post.

    The current financial crisis is always fed to us in £’s. One hundred billion pounds for example is not something that most people can equate to. They don’t have £100 billion, so they see it as just words or figures on a page.

    If the cost of the financial mismanagement were detailed as the cost to society, then perhaps it would concentrate people’s minds.

    How many destitute families, people unable to see an NHS dentist, hip operations that can’t go ahead, heart by pass procedures that will never occur. How many children will/are having their lives displaced, how many broken marriages.

    It really doesn’t matter whether you’re a pensioner, working, unemployed, a youth a child or an infant; ultimately a high price is likely to be paid, and the chances of you not having to pay it somewhere down the line are looking increasingly remote.

    It would be good to see someone lift the colours for the average pensioner, person, youth, child and infant and make it clear exactly what the true cost really is.

    I don’t know how to do it, but perhaps someone out there does.

  • Comment number 69.

    Will taxing bonus pools spur lending growth?

    1. £550 mm is a drop in the ocean, so can't see how in any meaningful way. Particularly in the context of a £78 billion deficit in 2009 alone. Lots more to come in 2010, 2011 and 2012 . . .

    2. Any foreigner who works in a bank will relocate outside the UK to avoid this by January. So their bonuses and taxes thereon will not be paid in the UK (France, Germany etc. will get a lovely windfall). Plus the UK will lose their income tax and NI contributions permanently. Well done, Alistair.

    3. Any Brits will likely pay this year; but with great cynicsim that this is only for one year. If they think a repeat is possible (wouldn't blame them given what's happened), they'll no doubt try to move to. Another loss to the Exchequer.

    71.5% is too punitive (50% then 41% income tax and NI on what's left). It will just drive people away.

    Finally, this whole debate around bankers' bonuses or otherwise is pure and very clever distraction from the real truth that this budget reveals: Labour have totally lost control of the public finances, and we're all going to have to pay through the nose for many years to sort it out. Choice is simple: Labour will cut much less and tax much more; Tories will cut much more and tax much less. The choice is ours!

  • Comment number 70.

    I understand that the tax is on DISCRETIONARY BONUSES. Does this mean all those guys hired with £10m or so of guaranteed bonuses do not pay the tax? (I know that the words guaranteed and bonus together do not make sense but we are talking banking here)

  • Comment number 71.

    #68 Dempster
    No capitalist gives a jot about that - so it isn't included. The people at the bottom, or pushed down there are mere collateral damage in the system.

    I first heard some noises about this in the early '90s in response to the nightmares brought about by Thatcher to so many people and communities (I was made redundant from my first job, age 16 as a direct result of her policies, so my youth was obviously full of hope!). There were some who questioned the value of economics and accountancy qualifications since these factors were never included.

    Bhutan uses GNH rather than GDP. GNH is Gross National Happiness. Marilyn Waring in New Zealand has also spent many years looking at the problems with GDP as a measurement of success. Although perhaps not directly looking at the issues you raise, there are people out there.

  • Comment number 72.

    Things are clearly a little of hand and all banks need a slap on the wrist but is it to the detriment of us all? RBS have made us all furious especially with recent tales of such greed. However there are some genuinely well run banks that do not deserve to be treated in exactly the same way. It is a little like the whole class is in detention after a naughty boy refuses to own up to throwing his rubber...
    Will we potentially lose affluent tax paying financiers to other countries? On the margin - yes. Will the Govt see less tax revenue, stamp duty revenue and VAT revenue as a result? Without doubt. In an already struggling 'recovery' will we see London housing take a dive? Yes. If we drive away one of the healthiest sources of tax from the City what will we have left? It seems that Brown and Darling have made the decision for us - despite our economic woes we would rather spite the bankers (and ultimately ourselves) to prove a point than making the economic situation of the country the first priority. A decision that seems extremely selfish. We need to hope and pray that banks do not relocate abroad in view of their tax revenues.
    And please can we shut the very smug Mr Peston up - think he has annoyed the world on this.

  • Comment number 73.


    Are hedge funds included? If not, why not? At least banks have other arms apart from capital markets of value to society which the investment banking can be said to help support. If the hedge funds (who, if any of the criticisms levelled at banks are true, are far more guilty) can get it away with it doesn't it make a mockery of Darling's intentions?

    I heard in the market today that the Treasury has had a list of 26 main firms for 3 months that this would apply to (so this has clearly been on the cards for a while). Now Darling said in his speech that every bank has benefited from the government's interventions in the market. This is not strictly true - at least not to the tune of a 50% tax on bonuses at every single bank. Smaller, leaner, often foreign banks survived (or made money) from Lehman's going bust, and probably could have withstood one or two more - we'll never know. The government now owns its own investment banks and can't afford to be competetive - so they've decided to hobble everyone else.

    The market - despite Smug Peston's discussion with one, count em, one fund manager - is not happy about this.

  • Comment number 74.

    71. At 8:58pm on 09 Dec 2009, copperDolomite

    OK CD you seem to be one those with some compassion.

    Many years ago I became a father, and realised I had great responsibility to both my wife and my then first child. But equally I had responsibility to those that I worked with, lived alongside and last but not least the country of which I formed a small part. In essence I became an adult. I believe that 90% + of all men, women and children out there if asked, do you believe in common sense, fairness and justice, irrespective of wealth, religion, gender or politics, would likely say yes.

    We are constantly reminded of our divisions, whether they be wealth, politics or religion to name but a few; but there seems to be little encouragement to promote the common good, and more particularly the common good for our children.

    Still I ask:
    How do we quantify the cost of the financial mismanagement other than in £'s.

  • Comment number 75.

    The only thing anyone should do with this government is take it, put it against a wall and line up the firing squad.

    Everything, but everything they do makes the situation worse whether its borrowing, quantitative easing, defence or any other form of intervention.

    It really is long past their sell by date

  • Comment number 76.

    Robert

    You've just described the banking industry as 'our strongest industry' on the 9 pm news. What? About as stong as a sick donkey in need of burden relief, deworming and antibitotics, I think you meant to say.

  • Comment number 77.

    writings on the wall - some great posts :) keep going!

    #46 quantboy - we are in agreement - when you factor in VAT also the poorest pay a much higher proportion of their income in tax - thats another reason to tax the richest more in a recession as they are more likely to just save rather than spend and keep the economy moving. With future VAT rises no doubt its seems likely the poorest will pay for this recession! I thought Vince Cables mansion tax was a great idea - Martin Wolf in the FT was in agreement with it. Why have Labour ignored it they still want to be mates with the rich - they should forget it the rich are all on Camerons side now!

    # 68 Dempster - i agree it would be better to put it into terms that people can better understand - one easy way is to divide by approx 20 million to give a figure per household - so £100bn would be £5k per household.

    Maybe you could work out how many duck ponds could be bought with it! Alternatively the maxed out MPs ACA allowance was £24k (which is also incidentally the median wage in the UK) so £100 billion is enough cash for over 4 million MPs to max out their expenses! or for all MPs (approx 600) to max them out for nearly 6,000 years!!!!

  • Comment number 78.

    #70 #30 i suspect a guarenteed bonus instead of a discretionary bonus wouldn't be that much of a wheeze. part of the reason why co's pay bonuses instead of salary, if this is the case, is so when they want to get rid of you the termination pay is not too high. It would also blow a hole in the theory that bonuses are for "above standard" performance. i am toying with the idea of the unfainess that contracted fat cats pay less tax than someboy who earns less but on discretion they receive a bonus

  • Comment number 79.

    Post 58 - writingsonthewall wrote: "... I have an issue with your piece played on radio 4 tonight - in it you described the finance industry as a 'wealth generating' one ..."

    I couldn't agree more ... e.g. see link supporting your previous comments on this subject and to a post of my own highlighting exactly the same thing too.

    1. http://poweromics.blogspot.com/2009/11/wealth-creation-really.html
    2. http://poweromics.blogspot.com/2009/08/wealth-creation-vs-wealth-manipulation.html

    --------

    Post 68 - Dempster wrote "... If the cost of the financial mismanagement were detailed as the cost to society, then perhaps it would concentrate people’s minds ..."

    IMHO the following posts point to the path you describe and highlight the impact of stress (and litigation yet to come) ...

    1. http://poweromics.blogspot.com/2009/08/leanomics-looking-for-recovery.html
    2. http://poweromics.blogspot.com/2009/11/stress-challenge-to-management-and.html

    Chapter 8 of my book (written before the crisis) also refers to increased stress, economic failure, increased taxes, job losses, marital breakdown due to stress/failure as well as unrest/war too (P218-227 ... http://books.google.co.uk/books?id=-8xAIgkewOUC&printsec=frontcover#v=onepage&q=&f=false ... which are all entirely predictable (and a result of the current 'system') - but the 'pain' felt is going to have to become much worse before people become bothered enough to do something about it, which is the reason for all the frustration etc that myself, writingsonthewall etc have expressed on this blog (and elsewhere) in the past ...

    Hope this helps ... as you quite rightly point out there are people (including myself) already on the case with regard to this (nb my book contains robust solutions to the 'economic' problems currently faced too) ... but this once 'great' nation is not ready to face up to the challenges ahead ... not yet at least.

  • Comment number 80.

    #68 Dempster

    fellow blogger, your thoughts are provoking. I too have faith in people as being just. when i was a student ( a long time ago) people were trying to do account formats where the amount paid to the workers was the bottom line instead of profit, the balance sheet tried to reflect the value of its workforce etc, basically though the formats did not reflect the true issue of justice etc. As you know large company's annual accounts are becomming bigger and bigger books, trying and failing to demonstrate corporate responsibility. IMO you cannot quantify justice etc, you can only place it ahead of profit and try to ensure it stays there in our culture. In hip hop culture Tupac was one of Americas most wanted, yet in prison he wrote 20 rules of thug life eg don't sling drugs to the kids etc. IMO in general the culture should be that if you want to be a player you need to show understand compassion etc even if it can't be quantified.

    In terms of your comment that people cannot understand £100bn i totally agree, life seems to be getting cheaper as we get older, i think but maybe wrong a heart bypass op costs c£20k when i was a kid rightly or wrongly it felt like this be an obvious thing to do, today we seem not to be able to. How can anyone quantify the value of a few further years of life for a loved one. What i would say though, on a less important matter, is that an abilty not to understand is almost being abused by some. The c£117bn figure is the amount of government outflow so far on bank shares and loans, although still a very difficult and uncertain task the net cost of the bail out is forecast to be c£10bn. My guesstimate is that this is likely to be a little understated but even so in financial terms,my guess is that this equates to a lot less than the tax revenue from banking for any one of the other tax years for 30 years. i know this will upset a lot of bloggers but to the best of my knowledge this is the reality of the figures. imo i also feel spite is becoming too prominant in the bloggs i can't belive 90% of bankers are much different to the 90% of the rest of us

  • Comment number 81.

    Evening Robert,
    this Government are truly amazing.
    In principle, I do not agree with retrospective legislation for whatever political reason. That is what this bonus tax is surely?
    The Government are modifying employment contracts for political gain.

    Do you remember when retrospective legislation was proposed to deal with the Fred Goodwin pension debarcle? Many people wrote to the newspapers protesting that this was interfering with a legitimate contract and was retrospective. It would seem that however odious, the Government agreed with the points raised and took no further action.

    I agree with a previous blogger, ALL profits made by a Semi-nationalised bank must be retained to improve their Tier 1 capital ratio. What's wrong with a simple bill stating (for the avoidance of doubt) that?

  • Comment number 82.

    Last week we were told that the senior bankers would earn £5bn bonus therefore this tax MUST bring in at least £2.5bn to £4 bn plus or have we been again hoodwinked?

    Vat, NI and the rest is fiddling with coals in a fire thats almost out (for those that can remember how to manage a real fire)in other words it is windowdressing/bullshine!

    By being so ineffectual he has simply left the mess for others to clear up which is what every Labour Government since Ramsay Macdonalds has done without fail.

    Will the British electorate ever have a thinking brain?

  • Comment number 83.

    77. At 9:21pm on 09 Dec 2009, danj180 wrote:
    '# 68 Dempster - i agree it would be better to put it into terms that people can better understand - one easy way is to divide by approx 20 million to give a figure per household - so £100bn would be £5k per household'

    I think my concern is not quite the £5k, it's what the eventual pain means for families and not least the kids.

    My fear is that at the moment it is just about figures and words and not what the true impact is.

  • Comment number 84.

    80. At 10:06pm on 09 Dec 2009, Kudospeter

    Don't know who you are, but if you were here, I'd buy you a beer.

  • Comment number 85.

    16. At 4:52pm on 09 Dec 2009, Objective wrote:

    Writingisonthewall, your ignorance is stunning it really is, settled before I even need to move on to "Footballers".

    You complain that banks failed to highlight the risk associated with "certain AAA assets" - do you even know what that means?!?!. Ratings agencies such as Moodies, Fitch, S&P are the ones that rate such assets.


    And as an economist I would have thought that you might have understood that ratings are opinions of risk based on a set of proprietry ratios and as such should be treated as PART of any risk analysis. Ratings effectively are subject to the laws of b*****It in b******t out in that if the complete constituent components of an instrument are not fully known all the way back to source then any rating is not 100% reliable with the degree of unreliability depending on the degree of data available. By that fact blind adherence to only the rating for risk assesment is indicative of a lack of an adequate risk process and therefore fails any due diligence requirement. By the way I'm not an economist BUT I did work for a ratings agency for several years.

  • Comment number 86.

    I dread to think how many multiples of 550 Mio will be lost in tax revenue as a result of this one off super tax. Two thirds of tax revenues come from London. Not for long. The cantons of switzerland must be licking their lips with glee. Who exactly will pay all the tax if, as seems to be popular opinion, we abolish banking?
    Just about everyone else goes on strike if their tea has one sugar too many in it.

    Robert Peston: windfall tax "no surprise as I've been banging on about it for so long". Looks like Alistair Darling does listen to you as much as your ego believes. I take it you think this is a good idea then. What is your estimate the effect of this super tax will have on the UK's tax revenue over the next 10 years? Time for one of your annoying pauses mid sentence.

  • Comment number 87.

    39. At 5:40pm on 09 Dec 2009, danj180 wrote:

    "2. The industry seems to be run for the benefit of its employees not its shareholders or customers"

    Agreed but the industry should be run only for the benefit of the shareholders including the government. The staff should be paid fairly not overpaid and the customers should be treated fairly at all times. The only people to have lost any money at he moment are the shareholders. To go on to say capital gains tax should be raised above 18% on shareholders is rediculous as it is those shareholders who risk losing their capital. Those shareholders provide the finance to keep most companies, and jobs, in existance. And those shareholders in the banking sector who have lost so much in recent times. I personally as a shareholder investing life savings have lost the equivalent of 5 years salary due to the governments removal of the assets of Northern Rock and Bradford & Bingley.

  • Comment number 88.

    74. Dempster.

    You could count the number of lost hours with your family - you have to work twice as hard just to feed them and keep a roof over their head.
    You could count the cost, in terms of police hours or arrests, of violence as a direct result (there have been food riots in some parts of the world as a result of the game of gambling on the price of wheat kicked off, leaving the very poorest on the planet to compete with the clever traders for bread).
    You could count the cost of empty premises falling into disrepair in terms of ruined building count.
    You could try to count the impact of lost skills. All those skilled engineers thrown on the scrap heap never to return, never to teach a new generation the accumulated skills and wisdom.
    You could count the number of additional lost available working days due to illness.
    Those unemployed get sicker and stressed for longer and growing evidence is now suggesting such stress adversely affects lifetime health of their unborn foetuses too according to research being done over the past 10 years. So it isn't just the price paid by you, it seems it is also the price paid by your unborn child over their shortened lifetime to come.
    I've no idea how you count the cost of lost dreams, the diminished ambitions.
    You might be able to count the cost in lawyers fees of a divorce brought about by the financial pressures, but can anyone truly put a figure on the impact of that on the couple, the kids, the grandparents?
    What is the cost of a boss who takes ill with over-work desperately trying to hold his company together and avoid redundancies? Do we measure stress hormone levels across the population? Or hours of sleep lost? Do we measure in terms of fear? Or perhaps lost dignity and self-respect of those who can no longer take care of their families by working to shelter and feed them?
    What is the value of an education to the kids who will no longer be able to take that route?
    What is the real cost of burglary that will increase as poverty increases (so many crimes increase when times are hard).
    Demonstrations will increase. Strikes will increase. They all cost people in ways that can't be measured in pounds. Some businesses will take the opportunity of high unemployment to abuse the workforce. Do we count the businesses or the affected employees?
    What is the cost to a nation when the bright leave?
    Then there is the cost in political terms. The massive loss of industry across Scotland under the Tories led directly to the Scottish Parliament. Wales was changed too. What was the cost/benefit of that and to who?
    If you can't afford to visit a relative or friend in hospital because you can't afford the bus fare while out of work or on short-time, you can't put a cost on that, not in pounds, not to you, or to your relative.
    How can you put a price on losing your son to the armed services, the only job he can get? Sure he makes money, not a lot but it is a job and a future for him. For you, nothing will appease your fear when it is time for him, or her to fight, there is no monetary value. When unemployment rises, applications to the services see an increase.
    How can you put a price on not attending your child's or your sister's graduation in medicine from a top university because you can't afford to go? All those master-card priceless moments...
    People move to find work. That destroys extended families and communities. We've just this week been informed about how that does no good in preventing depression as people loose and can't reform support networks.
    What is the cost to science and other areas of research - there will be drastical cuts as a result of the economic mismanagement.
    Will school class sizes be increased, and how do we estimate the cost of that? How will you pay for the internet connection your child needs for homework when you can barely pay to heat your home now that you are doing a lesser-paid job, if working at all?
    And the family pet dog will have to go. It is too expensive, and the vet bills...
    Your child can forget about the dreams of being a ballet dancer because you can no longer afford the ballet class.
    If she is older, well, it will just have to be a simple wedding at the registry office, not quite what she had dreamed of, but then most of her friends are having to do the same. Sad that the florist on your high street just can't get the business, isn't it?
    How will your football team keep going now that you and many others of the regular fans just can't go? What is the cost of that?
    The true cost is just about endless and now my head is hurting.

    I don't think there is a politician or economist on this earth who can express the true costs you ask for, because they just don't want to think in those difficult terms.

    Counting in pounds wipes away the faces of those who truly pay the price, turning them into units to be argued over in the House of Commons and banked by the people who profited.

  • Comment number 89.

    Robert,

    I'm fascinated to see you managed to find a fund manager to praise Ally D. I'm guessing it was the guy who runs UK Financial Investments, ie employed by the Treasury to manage its shareholdings in the likes of RBS etc. A bit worrying that you could only get one favourable comment from this sector from the several hundred firms located in London, especially as their job is decide if UK equities and bonds are worth investing in. I guess you don't have many Hedge Fund managers left to chat with anyway. The bad ones got found out last year and went bust, and the good ones have already moved to Switzerland to avoid Ally D's 50% tax next year. And that's the more interesting question you should perhaps be asking your fund management contacts: how many of them are considering relocating some or all of their business outside the UK? Of these, who will move staff, and of those how many staff will go? Then tell us your estimate of the tax loss to the UK. I'll guess it's an awful lot more than the bonus levy will ever bring in.

    The more I look at Ally D's tax changes (non-doms taxation, increased higher rate tax, banks' bonus tax), the more convinced I become that the government has taken a strategic decision to encourage large parts of it (not just banking or prop trading) to relocate outside the UK.

  • Comment number 90.

    #74 Dempster

    And don't forget now that we are practically broke, we may not be able to fully participate in any UN Peacekeeping and intervention needs. If the world was faced with another genocide somewhere in the world just how would we vote at the UN? Would we count the pennies first, rather than count the consequences? Another Cambodia, another Rwanda, another Bosnia & Herzegovina or Burundi. Will human rights also be the cost?

  • Comment number 91.

    60. At 7:44pm on 09 Dec 2009, jonathanbean wrote:
    The City is laughing at Darling because it will be so easy to avoid! Firstly he has exempted a huge number
    -----------

    Cynic that I am, I doubt it, they may be laughing, but it isn't at Darling. Consider.

    a) Last week RBS (MR Hester, appointed by Govt on was it 8Million?) Board said 'Stop the Bonuses and we will resign, we have taken legal advice that it is not in our Shareholders interests'.

    b) Darling is now being praised for facing them down and caning them.

    So I would suggest that

    a) The City may indeed be laughing, but not at Darling
    b) Brown and Darling are probably also chuckling at how they are still in with a chance at the next election

    As I said elsewhere, when Bankers or Politicians look stupid, check very carefully at alternative game plans, as they don't give a toss about us, and so when we think they do, their actions look stupid, but when we look and see what they are really doing, we lose and they gain, then we look stupid. Anyone who can get Bonuses totalling 1.5 Billion as their shareholders lose their dividends and cash on the shares, and the Business is effectively bust, is not what I would call stupid, and any politican who can so bankrupt the country but then be acclaimed for hammering Banks and Bankers is also not stupid. in fact I leave a little/big space here for you all to fill in the appropriate adjective - they are all --------------

    Vote against ALL sitting MPs, and certainly do NOT vote for the Lib-Lab-Cons. I'm thinking of joining the English Democrats, they look small enough for a few new members to make a difference. (I'll have to leave the UPF but we all have to make sacrifices, unless you are an MP of course, all you have to do then is count your (tax free?) pay off money.)

  • Comment number 92.

    We're in for a dirty and vicious election campaign. It's obviously only simmering at the moment and I for one just want to get to close to the endgame as swiftly as possible, please.

    The truth about cuts in government spending is that government can only cut a decent amount of annual spend by making people unemployed who will then subsequently need a be supported by unemployment benefit. So as a society we'd want to continue to support someone who has just lost their job, we're not actually cutting spending, but productivity.

    The public sector spend has gotten too large as a proportion of our economy; our taxes can't sustain it and it needs to be reigned in. But if it needs a place for those newly unemployed to go otherwise you're still spending the same amount (or more).

    The pragmatist in me does note one area where a significant amount fo growth could come from: we own a few banks which could be worth a lot of money if they could be kick-started again. Obviously I wonder if it's just crazy but we could do with that money back.

    What the UK really needs is some sort of vision to drive us out of this deficit mess and I'm not sure anyone knows where it's going to come from.

  • Comment number 93.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 94.

    So how does this tax 'bash bankers bonuses' then?

    Soft option-easily worked around and only a one off? Why bother?

    Call time on all bonuses across all industries, and instead pay a decent wage. Regular income, and people not up in the gods will have a wage they can actually live on. Oh, not to mention regular tax and NI which makes budgeting easier.

    Apparently the computer systems at the tax office are such dinosaurs it causes problems collecting taxes!

    Bankers and their employers must be giggling in the champagne as they toast the PBS.

    This was so political-note Robert's comment about increasing funding for schools and hospitals. The usual targets to win votes.

    Yup. I've become very cynical about banks since this all happened last year. I remember posting about the real face of the credit crunch way back then and nothing's changed.

    Should have blocked the bonuses and called their bluff. This one off bonus tax is not going to be effective.

  • Comment number 95.

    Well the good news is that on Today Darling stated 4 times that he is planning to half goverment BORROWING over 4 years.

    And i was under the impression that all he was planning to do was half the gap between spending and income (ie half the yearly INCREASE in borrowning).

  • Comment number 96.

    34. At 5:28pm on 09 Dec 2009, TheBorg wrote:

    'Dr G and Writingsonthewall
    I do read this blog and cannot believe the hatred and lack of a balanced view that comes out of it, principally from people like yourselves - just thought i would add a leveller - which I still think is justified !'

    I can't speak for WOTW but I don't hate bankers and I apologise if this is how my posts come across.

    I am frustrated and angry... but mostly scared.

    Everything that has come to pass, all happened before.

  • Comment number 97.

    Congratulations Mr Darling for finally getting tough with the bankers who, after all, got us into this mess in the first place. All the complaints from the right wing press about budget deficits and tax rises etc ought to be laid at the door of the very same rich bankers who are now extracting huge bonuses on the back of the tax paid by ordinary people on low incomes. It's a disgrace in moral terms. Had the trade unions exacted such damage on the economy, they'd have been lined up and shot. When it's the City boys and girls, what happens? They get taxpayer-insured bonuses larger than most people will earn in a life time. That's why I'm in the Labour Party. The party which stands up for ordinary people's rights and stands for fairness and income redistribution. Think about what all those millions could do if spent in a socially useful way - read my article at http://slingerblog.blogspot.com/2009/12/protect-arts-drama-music-and-culture.html

  • Comment number 98.

    95. At 09:00am on 10 Dec 2009, icewombat

    I heard the chancellor on the radio and saw him on the TV this morning. On the TV you have to watch how many times he blinks when speaking (a sure sign of lying).

    On the radio, in between Evan Davies's hysterical laughter at some of the nonesense the chancellor was speaking I did pick up 'the plan'.

    The plan - By Alistair Darling

    When QE stops buying Gilts the new criteria for liquidity for banks should enforce the banks to start buying Gilts (which are listed as acceptable assets).

    However this plan hinges on
    a) the retention of UK Gilts AAA rating
    b) The desire for banks to purchase these (over other listed assets)
    c) The desire for banks to give up their liquid cash in exchange for a fixed return in a market where there are many depressed assets for purchase (i.e. cash is king)

    Although UK Gilts are liquid, this can all change - property was reasonably liquid 3 years ago and now it's a stagnant market due to over-supply.

    Don't forget the UK Govt will be issuing as many Gilts as it is at the moment (to service it's debt) except:
    a) The biggest (and only net) buyer (the Government) is no longer in the market
    b) The Governemnt needs to offload the Gilts it bought under QE.
    c) There are less banks around to purchase these Gilts

    I also have noticed a new trend in Government (and opposition) lying - invented by the spin doctors. It's the phrase "front line services" and the reference to them not being cut.

    However anyone with any sense knows that the alternative to 'front line services' are 'back line services' - i.e. the support for those front line services.
    If you cut your administration and support services for the front line - what happens to the front line?

    What happens to your brain when you cut the support it receives from your heart?

    Services will be cut to pay for the banking bailout - there is no debate - the politicians are hoping the electorate will be stupid enough to believe them when they claim they can severe the arteries without damaging the brain.

  • Comment number 99.

    One bit of AD's speech that has not attracted comment (and he read it very quickly) was: "And any new Government appointment over £150,000 and all bonuses over £50,000 will require explicit approval by the Treasury." Which suggests that civil servants routinely get bonuses over £50k - interesting.

    So, a banker getting a bonus of £30k incurs a £15k tax charge for his employer but not so a civil servant. Perhaps a bit more transparancy about the bonuses paid to some of those who are setting policy (eg limiting public sector pay rises to 1%) would be a good idea.

  • Comment number 100.

    96. At 09:27am on 10 Dec 2009, DrG wrote:

    34. At 5:28pm on 09 Dec 2009, TheBorg wrote:

    "I can't speak for WOTW but I don't hate bankers and I apologise if this is how my posts come across."

    I actually don't give a monkeys what TheBorg thinks about how I feel about bankers.

    They have had their fun and now they pay for the consequences - bankers play the games at the casino but don't want to settle the bill at the end.

    You can read my posts as hatred, but I know they are based on sense and logic - something the bankers are bereft of as they never consider where the profit they congratulate themselves on making comes from.

    If they did - then they would show the humility beffitting their crime - and it is a crime, just one committed in the future on our children.

    If people want to justify bankers salaries and bonuses with reasonable arguments then that is fine, however to simply state that bankers deserve their pay or they will leave is a reasonable justification for the rewards of failure then I shall treat those people with the contempt they deserve.

    For too long has the world stood by and watched the pillaging of the poorest for the glutony of the richest abley assisted by Capitalist Governments.

 

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