Representatives of London's financial district called a possible windfall tax on banker bonuses a "political gesture" that could be harmful—and tough to implement
By Ambereen Choudhury and Andrew MacAskill
(Bloomberg) — A possible tax on banker's bonuses would constitute a "political gesture" and wouldn't work, according to the City of London Corporation, which represents the British capital's biggest financial district.
"It's more or less a political gesture to assuage the anger that people feel about banker bonuses," said Stuart Fraser, the corporation's policy chairman in an interview today. "There are huge difficulties trying to apply personal tax just on a single group of people like bankers."
Politicians are seeking to mollify angry voters after the government offered more than 1 trillion pounds ($1.63 trillion) to prop up banks including Royal Bank of Scotland Group Chancellor of the Exchequer Alistair Darling is considering a levy on bankers' bonuses before next year's election and yesterday refused to rule out a tax on the payments.
"We are not going to be held to ransom by people who believe you can pay extremely large bonuses regardless of what's going on," Darling told BBC television yesterday. "You have to be fair. You have to be reasonable. But you have got to keep an eye on what the long term effects are."
Taxing bankers' bonuses "raises a couple of fairly major logistical issues," John Whiting, tax policy director at the Chartered Institute of Taxation. "There are big obstacles to overcome before you can even get into the wider implications about 'Is this a good thing to do?' and 'What signals does it send?'"
The main difficulties will be how to define a banker and what is a bonus, Whiting said.
"It's blatant electioneering from the government," said Ronnie Fox at Fox Lawyers in London, which specializes in employment law. "It's not a clever thing to do - to drive the people who generate money away from the country and discourage them from doing what they need to do."
There is a precedent for imposing a windfall tax on British banks. In 1981, the Conservative Party under Margaret Thatcher imposed a 2.5% levy on the banks' non-interest bearing current account deposits, which was justified on the grounds that rising interest rates were generating unearned profit.
"We would hope that the government would not be looking to a regime which would discourage businesses from staying in the U.K.," said Lesley McLeod, a spokeswoman for the British Bankers Association, a London-based lobby group which represents 260 financial companies.
"It is now inevitable that there will be some form of short tax levy on the banks," said Alistair Milne, a senior finance lecturer at London's Cass Business School. "The banks have played their political cards extraordinarily badly. They have invited, and will get, a heavy handed political reaction."
"Any approach other than the tax system to curb the greed of the multi-millionaire elite is futile," said GMB union General Secretary Paul Kenny, who represents public sector workers, in a statement today. "News that the government intends to impose a super tax is very welcome and should have been brought in years ago."
Darling said he has not yet seen bonus plans from government-controlled RBS and that he has the power to veto any proposals he considers excessive.
To contact the reporters on this story: Andrew MacAskill in London at firstname.lastname@example.org; Ambereen Choudhury in London at email@example.com