UK Imposes One-Time, 50% Tax on Banker Bonuses

BY Carolyn O'Hara  December 9, 2009 at 7:52 PM EST
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British bankers’ bonuses will be a lot lighter this holiday season, thanks to a one-time, 50 percent tax imposed on bank bonuses, announced Wednesday by Britain’s chancellor of the Exchequer, Alistair Darling. Bonuses greater than 25,000 British pounds (about $40,600) will qualify for the tax, which will be paid by banks rather than the individual recipients, and will take effect immediately. I spoke to Katherine Griffiths, banking editor for the Times of London, this afternoon about the move that is reverberating in global financial capitals. What’s the government’s motive behind the bank bonus tax? KATHERINE GRIFFITHS: Its stated purpose is to ensure that banks focus on building up their capital rather than paying out profits to employees. Its political purpose is that, in the run up to the general election next year, it doesn’t want to face the situation where banks that it’s had to bail out are paying huge bonuses to [people] ordinary people see as fat cats. It’s not really deficit related because the Treasury only expects to make just over half a billion pounds from the tax, so it’s pretty tiny in terms of helping the deficit. How many bankers will be affected? GRIFFITHS: It’s about 20,000 bankers who are likely to be affected by the tax. All banks — UK banks, foreign banks, anyone operating in this country — will be affected. How has the banking community reacted? GRIFFITHS: They are furious. They think it’s very unfair and are making lots of dark threats about moving to other places. [They are] generally saying that their human rights are being infringed upon, on the basis that the tax is targeting a specific group, which is a highly unusual thing in UK tax law. Is there precedent for such a tax? GRIFFITHS: We’ve had taxes on banks before. We have had windfall taxes on industries. And as it turns it out, this will be a tax on banks rather than bankers, but it’s fairly unusual because it is based on individual bankers’ pay. It is a one-time tax. Are these dark threats of an exodus, as you say, likely to become reality? GRIFFITHS: It is extremely difficult to tell, but I think that it is because a one-off tax, although [government officials] are reserving the right to extend it, then there won’t be that much of an exodus.