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?

There is/was no golden age - only ever rose coloured glasses.

You have to also think that if the banking industry does recover the government will make a huge profit from their investment in the sector.

And you also have to realise that lots of the money paid to bankers in bonuses goes on to line the pockets of builders, plumber etc and cleaners, it allows them to take holidays which again means the money goes back into the economy. I know if DHs takes home a lot less than normal at bonus time (and he does not work for one of the banks that was bailed out) we won't be paying our builder to do anything and that will mean a lot more to him than it will us.

So I do hope that everyone is not shouting about greedy bankers but actually realising that it was a very small percentage of them that fucked up and if you penalise all of them you are going to do a lot more harm to other parts of the economy.

Yes, that's the thing. At present the Government holds 40% of Lloyds. When they obtained this stake (in March), the share price was trading at around 30p. It's now trading at around 55p, despite banking stocks being hit (again) quite badly in the last few weeks (Dubai crisis, tax stuff). So, if the Government sold it's shares now at the market rate, they would make a profit of around 25p a share. Not to be sniffed at. For the loans, these are not zero rated - the banks do have to pay interest on these, which is another way the government will make profits. I'm pretty sure when the government exits these banks in a few years/months time, it wouldn't have made a loss.

Ali, when you go for a new job, they don't ask you how much you made in 'x' year - they already know.

The industry is small and people talk. Traders in each specialist bit know who is doing well and who isn't - that is how they know who to try and poach. And you know who gets binned and why. The vast, vast majorities of hires are done by word of mouth. The CV is secondary to the reputation someone has in the market and I just cannot, cannot, cannot believe any senior trader has been to a job interview in the last 5 years where they have been able to hush up a bad year by simply quoting their P&L figures from a good year, and then got the job without anyone being any the wiser that they cocked up.

It is like a footballer being sacked from a club for being crap and then being rehired by another premiership club because he told them he scored lots of goals 3 seasons ago.

You say you used to work in banking, so I'm sure you know what a trading floor is like. Lots of shouting, lots of stress, lots of number crunching. Why on earth would any of that be going on if most traders were just 'putting on a bet' and waiting for the money to come in? It just doesn't make sense that the most successful people are sat with their feet on their desks and their fingers crossed.

Nothing better to do with their time, mainly...

The stock market is really a small fraction of the financial services industry. For every person buying and selling stocks and shares, there are dozens more doing really very complicated things with bonds and currencies and gilts and any number of other financial 'instruments'.

Some people shout because they need someone at the other side of the room to hear them, others shout because they are agressive and in a hurry, others shout because everyone else is shouting and it is the only way the person sat 4 feet away can hear you.
A bit like when you go into a bar and have to shout at your mates because of the background noise. But without the booze.

Yes, trading is generally only one small part of what an investment/corporate bank does. You may also have things like lending (syndicated loans, for e.g., so raising money amongst a whole bunch banks to raise finance for big projects, like public infrastructure, dam building etc. Construction of the channel tunnel was partially funded this way), asset finance (so supplying airplanes to airlines etc.), transactional banking (moving money from one jurisdiction to another, for companies and also for other banks), trade finance, advisory work (mergers and acquisitions, restructuring companies), private clients, fund management (so pension funds, long term investment vehicles) and so on.

Also, I think it's something like only 1/3rd of total staff employed in a bank are "front office" (so traders, M&A bankers etc.), the rest of the staff are: IT, support staff, lawyers, accountants, various operations teams (monitoring trades, settling trades, onboarding clients, reviewing clients), various project teams, HR, corporate sponsorship and events and so on and so on.

But serenity, they are all equally evil and culpable
#pitchfork emocicon#

sparechange I agree that banks have pressure to pay those bankers that consistently perform well in order to keep that human capital, but given the massive shakeup we've had over the past year, with very talented bankers from Lehman, Citibank and other institutions out looking for jobs, surely no one believes they are irreplaceable and that only they can do that job. None of these star traders could do it without the infrastructure the bank provides, so that is also a consideration when considering if you could actually build that successful business elsewhere.

Also -I believe the share price of any corporation is vastly important to its survival. There was a run on both Goldman Sachs and Morgan Stanley in October of last year, and if their share price had fallen any further, they would not have survived in their current form. A low market capitalisation impacts the company's credit spread and makes it very difficult for them to get liquidity in the market.

I have to agree with Aligrylis here too and say that I have personally known traders who have taken a huge punt to make a bumper year, and then traded off that reputation for several years. They are probably not so marketable now that the banks are more sensitive about preserving capital and reputations, but nonetheless, it has definately happened in the past.

very interesting debate.

One thing, though, this thing about it not being fair if employee X doesn't get his bonus because employee Y in a completely different part of the company fucks up... well, employee Y wouldn't have a job at all if we'd let the company fail.

Doesn't matter what job you do, you are affected by the decisions and performance of your fellow employees and if they are dangerous enough to sink the company, out you go. Or merely bad enough to affect profits, tough tit, no pay increase.

Seems to come up again and again that some people in financial services or related to people in that industry don't realise that everyone else works too. Issues about fairness and pay and performance affect all of us, not just them. And the rest of us have been living with 'your job may be at risk even if you are doing it really well' for a very long time indeed.

Partly (only partly) because of the ruddy banks/private equity/dealers mucking around with companies for a fast buck rather than long-term profitability.

(Not that I'm bitter about working for emap or anything and yes, the bosses did take some crap decisions, but you know, good people doing a good job and earning money for the company were sacked just in order to move the deckchairs around in a way that presumably made money for someone....)

Just announced in America:

'Goldman Sachs, bowing to criticism over its record bonuses, announced today that bonuses for all top executives this year would be paid in restricted stock rather than cash. Among the restrictions is the condition that the stock couldn't be sold for 5 years.....Goldman has faced public anger when it was announced they had set aside nearly $17B for year-end bonuses after receiving a $10B taxpayer bailout last year during the financial crisis....according to the Wall Street Journal, Goldman employees were on pace to receive $717,000 per person n 2009. '

Further PR spin:

'According to a Goldman Sachs press release, the firm would increase "clawback" provisions allowing the firm to recapture the bonus shares in cases "where the employee engaged in materially improper risk analysis or failed sufficiently to raise concerns about risks."

The move "is intended to ensure that our employees are accountable for the future impact of their decisions, to reinforce the importance of risk controls to the firm and to make clear that our compensation practices do not reward taking excessive risk," the company said.'

edam, I don't think this tax is fair, but not because the bank I work for is making lots of cash.

I don't think it's fair because both my husband and I do exactly the same job (both accountants) but he pays a marginal 42% tax rate on a higher income and I pay a marginal 72% tax rate on a lower income.

I cannot see how that can be justified.

Or take the example of the guy that works for me. His bonus will now be cut in half because it's just over 25K (if our bank pays a bonus at all because at 72% tax it's barely worth it). His flatmate is a trader and works for a hedge fund. He will still take home a cool quarter of a million.

This tax is purely vindictive and it's not even very clever. It's certainly not aim going to catch out the people on the megabucks.

Things will never change here, though, Earlybird.

I would echo Serenity's comments about FS being the major industry in the UK and the loss of this would be catastrophic to the country. DH and I both work in banking in middle/back office roles (both for UK banks that weren't bailed out) and left the UK 3 years ago and now are even more unlikely to return which is very especially for DS' Grandparents and other family.

Banks and other major companies have been known to put pressure on the Government by 'threatening' to leave the UK resulting in somewhat of a climb down - will be interesting to see if the same thing happens again. Yes I know this doesn't affect me but I do have a lot of friends still there who may be.

Those concerned that PE Funds and Investment Managers etc may not get their bonuses taxed - actually if you read the terms of the proposed legislation it will catch some of these people and possibly many more.

Is it true that most of the significant hedge funds are moving/have already moved to Geneva?

how do you pay 72% tax? ...the 50% bonus tax is borne by your company not you. We don't add in employer's NI when we work out our own tax liability.

and it isn't about 'catching the people on megabucks' either

it's a political point but aimed at trying to encourage banks act more responsibly when it comes to banker's pay. I can see why he might have tried to do something like that (personally, I think it's far better to add in long term incentives for employees on that sort of money anyway...like share options etc.). But it was a PBR before an election hence the political element.

I know a fair few people who run hedge funds and they aren't moving but then again, they had structures set up that meant they were offshore entities anyway.

As I've been saying for most of this year, it's not necessarily the measures that the government is taking that are discouraging people, it's the very aggressive way HMRC are hounding business and launching enquiries because this is the government's focus for pulling in the cash it needs.

The only investment encouraging measure they have announced is the reduction in tax on income from patents. They need to come up with more measures that encourage investment and growth, not discourage it because at the moment, as a medium sized business in the UK, we are just facing wave after wave of HMRC inspectors trying to come in and rake over records from years and years ago to see if they missed anything! But no encouraging measures at all.

And who is the biggest employer in this country? The NHS. So who does the rise in NI his the most? Doesn't take a brain surgeon to figure out that that measure will take from one hand to give back to the other. Madness.

hit the most not his, though we should probably all hiss anyway!

Anatole Kaletsky also making the point about Financial Services being the UK's only remaining industry

"encourage banks act more responsibly when it comes to banker's pay"

What does that even mean?

Companies pay employees what they have to. No more, no less. And their only responsibility re employment costs is to their shareholders. Not to some faceless mob.

In banks who were "bailed out", state is now a major shareholder, and hence has the right to enforce its wishes re employment costs. In the rest of the banks, financial institutions, funds, law firms, engineering companies, etc it has no right to dictate an upper limit of salaries or bonuses.

I completely agree CoteDAzur - these actions are really quite worrying from an over- intervention and mob-mentality perspective. It's banks now - what next? I would have much more respect for the government if they exercised their existing right as shareholder of the bailed out banks to control how people are paid there. Possibly they won't do that because they are concerned they will lose very good employees at those banks, and the share performance will suffer - will that is how the shareholders at these other banks feel! In fact, now that I think about it, maybe this falls under some anti-competition law - they are shareholders in a few of the banks and they want to make sure the other banks don't poach their good staff!

Also - they have failed to mention that bailout was structured as an investment and that investment is already up.

Which do you think is a better allocation of the cash? The bankers spending it on UK goods and services and donating to charities, or the government taking it to spend it inefficiently - another computer system for the NHS anyone?

thats was a good piece from Kaletsky..but then he always talks sense...

Sparechange,

Clearly a trader does not literally put on one trade. He trades in and out of a variety of products, mostly correlated to one scenario. The reality is that, for example, they may have a portfolio of long/short credit and trade in and out but they will remain with positive accruals and hence long credit risk. As credit spreads tighten they both make the accruals and the MTM....until it all blows up.

As you said, the City is incestuous. There are some very good people but some who do manage to bluff it. And there is definitely the idea of there being "1mio", "10mio" and "50mio" traders with little regard to their Sharpe ratios (consistency). And guess what, big traders are great payers to the broker community who in turn recommend the same big traders to other institutions.

My husband knows plenty of millionaires who are still working who are down "career to date". They just have 5 good years and then a huge blow up. People forgive the huge blow up because of their previously "consistent" track record (and their bank is often embarrassed to reveal the actual amount they have lost). They can do this 1 to 2 times before they are finally found out but during that period take home millions in bonuses.

The killer question is, to me, if traders were so talented why have they net/net, over the last 15 years, lost money, necessitating a bail out. And why have the shareholders (in case you have forgotten, the actual risktakers) lost 90% of their capital?!