50% levy on bonuses above £25k

[susie100]

Suprised there is not a thread about this already (although I might have missed it)

Great vote winner, however I am really doubtful it will raise any significant revenue for the government as banks will simply raise basic salaries, turn their trading floors into hedge funds and re-employ people as consultants.

Crazy to be attacking the sector that provides 25% of tax revenues in my view (I am not a banker by the way!) but not applying to other financial institutions such as hedge funds or private equity firms or indeed other industries that pay people £££ such as consultancies. They all benefitted from cheap credit as much as the banks.

What does everyone else think?

edam - Agree all banks benefited from various goverments (not just in the UK) rescuing the sector. But so did the hedge funds etc, but they won't feel this.

I personally wouldn't object to a global banking tax to help pay for the bail out, but it has to be carefully done. If one jurisdiction introducing a tax, banks will just move. There's no reason why they have to based in London. It has some advantages (available skills base, time zone and historically low taxes being some) but if it were to lose any these (ie the tax) why should banks not move? Then we lose the tax revenue altogether.

yes pretty much!

Um, not necessarily. The bank I work for (fortunately) managed to foresee that this was coming and had largely stayed away from subprime mortgages and related products, and had increased its capital above the Basel recomendations months before anything started going wrong. A lot of the business areas were hit quite badly (I went to a talk by one of the global heads, saying that he was actually lauded for only losing $2bn in his department, because they expected to lose so much more), but things have still gone on and some businesses have actually grown (distressed real estate, M&A, secondary loan market).

Could you please explain how "printing money" has benefitted banks? And then surely, if printing money has done so, it has also benefitted all other industries, so surely they should also pay for this form of government support.

Serenity, not sure which bank you work for but most have benefited in one way or other from the bail outs.

For example, my bank took no direct goverment money and saw most of this coming, same as yours, and moved out of a lot of the riskiest businesses.

However, by coincidence they also had one of the largest exposures to AIG when AIG nearly went bust. Luckily the US governent bailed AIG and they did not go bust, and neither did we. I'd be very surprised if you worked for a bank that did not benefit in a similar way as I can't think of a major bank that hasn't.

Never mind not being able to think of a bank that wasn't bailed out. I can't think of a single individual who wasn't bailed out last year, no matter what their job.

The govt. didn't bail out "bankers" because they thought they were swell guys who deserved a break. They did it through gritted teeth because they knew our economy was facing armageddon and this was the only way to save it.

Money is the blood of our economy. Banks are the beating heart. Cut off the blood supply and you kill the living body - that's all of us.

The UK is making itself increasingly unpopular around the world. A lot of companies are pulling out, hedge funds moving abroad. We are seen as a very bad place to do business these days. And yet the uninformed gullible avid consumers of the Daily Hate-Mail just think "Hurrah, rich boys getting their wrists slapped."

It makes me groan...

I mean compared to the humungous ones bankers often seem to get.

Lots of jobs pay a relatively modest salary then make it up with big bonuses.

Anyway am glad it only applies to bankers' bonuses.

Bells, you're right, the government had no choice but to bail the banks else the whole economy would have suffered. We all gained from the bail outs.

However, the fact that the banks needed to be bailed out in the first place suggests that there is something fundamentally wrong with the model. I think it is valid to question how the sector is regulated and how banks incentivise their staff as it is very short termist. Like I said above, I don't think a global tax on banking is a bad idea, not just to pay for the last bail out, but as also because now the bank's have been bailed there is an implicit insurance policy promising that they will bailed again if this happens in the future. Any other sector would be expected to pay for insurance and I think that the banks should too.

However, this tax isn't the way to do it. It is just to appeal to your average Daily Mail reader that doesn't understand the economics. Sadly I don't think that Brown and Darling understand the economics either and we really are in the shit.

Riven that's scandalous. A whole tin of biscuits all to himself? Your DH is a greedy, grasping, socially-useless, scurrillous waste of space. They should take 90% of his biscuits and only leave the plain ones. That'll teach him.

When I heard this announcement I spat tea across the room.
It is utterly pathetic.
The country are feeling grumpy towards the banks. So Gordon, facing an election takes some 'tough measures' to please the voters.

Except of course these tough measures are feckin' pointless.

Anyone on a lower wage in a bank who needs their bonus to live on will get hammered.
Anyone on a huge bonus will just wait this year out and live on last years/investments etc.

And what about all the hedgies who helped contribute to the crisis? And the firms of actuaries who worked out the risks? And the lawyers who advised on how to wrap up toxic debt? And the pension fund holders who...

Gordon, you know full well you ccan't do without the city. It's one of our few remaining industries and it makes shit loads of money for UKplc. So stop pretending to be tough.

What sort of biscuits Riven?

smallwhitecat that sounds like a good idea - it's basically a windfall tax but dressed up in prettier words.

Well said Riven. The most I ever got was a turkey and that 25k is more than my total yearly income now.

And I'm not too worried that a few of these 'bankers' might emigrate. They might not even be welcome elsewhere. "Really good at losing money" is not going to look all good on the job application.

It is the wrong way of going about it though. Just a grab for money without really thinking it through. There is something basically wrong with the system that needs fixing.

Actually, why should any business be allowed to offset past losses against current profits?

No doubt there are good reasons, but on the face of it it seems a bit pointless.

I am really pleased they have done this, even if it is just "politics". It's the message it sends not just to the banks but to the taxpayers too.

I am not sure where all these bankers are going to go anyway? Switzerland perhaps but there are not that many other countries with loads of banking jobs going spare.

Anyway, anyone that money motivated is not a great loss to us IMO.

I have also read today that an insurance scheme for all banks (where higher risk banks and larger banks pay higher premiums)plus a transaction tax on each trade/financial transaction is also proposed and I hope that happens too.

And £25K is a massive bonus for those that said it wasn't.
What world do you live in?
No ordinary bank worker will be getting anyway near that sort of annual bonus.

My friend who works in a retail bank normally gets about £3-4k and she is on a reasonable/higher than average salary.

Surely the worry about Switzerland is the jobs moving there rather than (just) the bankers.

Lots of jobs don't pay small salaries then top it up with a bonus. Cerainly not middle of the road £20k a year admin work- which is what a hell of a lots of people do. I've never had the opportunity to get a bonus and never worked with anyone on the same level who was entitled to one. All the directors get bonuses though.

Riven, were they this type ?

If I was a sucessful banker you'd just leave the Uk, then they'd get 50% of fcuk all in tax.

mateykatie, The reason why losses can be offset against future taxes is to avoid causing disincentives against certain types of business.

Lots of businesses require huge upfront investment and may not produce profits for many years. If you couldn't offset these losses you probably wouldn't go into the business. Imagine I have a great idea for a new drug. I would have huge upfront costs to do the research and develop the drug. I may spend years doing drug trials to ensure safety and effectiveness and all this time I'd have no income. In five or ten years' time, I'd want to offset these costs against any potential profit. If I couldn't I'd want to charge a hell of a lot more for my drug else I wouldn't do it.

Similarly, some businesses are highly cyclical. For example, construction tends to suffer more in the bad times but perform better in the good. Overall the returns are about average. If a builder can offset his poor years against his bad it's worth his while. If he can't, he'd be better off doing something that would generate a more stable income.

a £25k bonus is more than the salary of many of the bank workers made redundant as a result of the mess those higher up the ranks got them into. A £25k bonus is more than newly qualified teachers and nurses are paid. Their pay is now capped. Why shouldn't bankers pay just a little bit for their cock up?

mollythetortoise:

I am not sure where all these bankers are going to go anyway? Switzerland perhaps but there are not that many other countries with loads of banking jobs going spare. > Anyway, anyone that money motivated is not a great loss to us IMO.

I hate this notion that because you work for a bank you should somehow have to pay.

When we talk about people working for banks earning bonuses, we are talking about hundreds of thousands of people, but only a few of those are actually responsible for the downfall of the banks, and equally only a few of them will be earning massive bonuses.

Working for a bank does not make people guilty by association. But while the million £ bonus earners have financial accountants to help them through the loopholes, the average man on the street who earns a 25k bonus does not, so it is the lower paid that are being penalised for the mistakes of their bosses.

And no, 25k is not a massive bonus in the grand scheme of things. Given that very few banks pay 100% bonuses, the majority of people earning a 25k bonus will be earning signifficantly less than that in salary (before bonus), so with the bonus on top they just might be making an ok living, but certainly not enough to buy a house in the city.

I think that people are a bit naive wrt bankers leaving. The likelyhood is not that the bankers will go, but that the banks will pull out altogether. I'm sure Zurich would love to take on the job of being the financial capital of Europe, and if banks start pulling out of the UK we will lose all credibility in terms of global finance, not to mention the massive impact it will have on our own economy and unemployment. But carry on saying we're better off without the banks ey.