New Labour plays hard ball with bankers' bonuses
Alistair Darling's decision to impose a super tax on bonuses of
City bankers will go a long way to appease public anger over the
role of the UK banks in the credit crisis but this move, if adopted
on a longer term basis, could seriously damage the UK's
position as a leading financial centre, says leading financial and
business adviser Grant Thornton.
"Today's announcement is a bold move by New
Labour to show the Government is listening to public
dissatisfaction over the salaries and bonuses of wealthy City
bankers with an election only months away," says Dana Ward,
Financial Services Tax Partner at Grant Thornton.
The Chancellor's decision to impose a
temporary 50% levy* on UK banks paying bonuses on amounts in excess
of £25,000 if they choose to pay substantial bonuses instead of
rebuilding their capital base, will mean banks will have to
consider their options carefully.
Certain banks have already taken precautionary
measures and increased salary levels to compensate for the
anticipated impact on bonuses. This leaves banks with an increased
fixed cost and less room to manoeuvre in strengthening their
regulatory capital base.
"Banks may have to absorb the additional levy
cost to reward their key executives or risk losing their top
revenue earners. The Chancellor is clearly expecting banks to
behave in a responsible manner whilst asking them to walk the same
tightrope that the Chancellor does in balancing the requirement for
growth whilst addressing their capital deficit." continues
Ward.
"Whilst it is preferable that the measures are
aimed at an institutional level, they could be counter productive
and seen as an attempt to regulate pay within financial
institutions when what is really needed are longer term
measures to achieve the cultural shift within organisations to
ensure that their remuneration policies are not contrary to public
interest."
"Fiscal policy must be seen to be implemented
equitably and responsibly. Arguably the current measures will
be seen by some as a form of fiscal retribution given their
targeted nature. This could lead to highly paid individuals seeking
to take themselves out of the UK tax net.
"The devil is indeed very much in the detail
as the measures require banks to report details of all bonuses over
£25,000 awarded between 9 December and 5 April 2010 irrespective of
whether they believe bank payroll tax applies or not. The banks
will clearly be subjected to much tougher scrutiny in relation to
their bonus arrangements which will inevitably lead to difficult
negotiations with HMRC," concludes Ward.
For more information please contact:
Suvra Datta, PR Manager, Grant Thornton press office 0207 728
2375 or via email on suvra.datta@gtuk.com
Dana Ward, Financial Services Tax Partner, 07792 033334