Myners dismisses City ‘supertax’ fears

Lord Myners has dismissed City fears over a new bonus “supertax” by arguing that bankers should blame their boards and shareholders rather than the government.

The City minister told a New Statesman seminar in Westminster on Monday that the Treasury made “no apology” for its decision to impose a one-off 50 per cent tax on any bonus over £25,000.

The measure, announced in the pre-Budget report, will raise at least £500m from the financial services industry. It has prompted threats from some quarters that bankers could move offshore to alternative centres such as Singapore or Zurich to escape the levy.

There are also fears on the left that bankers will find ingenious ways to escape paying the full levy. Charles Clarke, former cabinet minister, said on Monday that the “theatrical” tax fell short of the more fundamental reforms needed to limit “casino banking”, strengthen mutuals and strengthen consumer protection.

Far from apologising for the new tax, Lord Myners said the government had been “frustrated with the level of resistance to reform we have seen from the industry”.

This was in spite of a government bail-out of the banking sector that has been estimated by the National Audit Office at £850bn.

The City minister said banks still had the choice to give employees their expected bonuses – simply by raising the size of the bonus pot.

“It is worth reminding everyone that complaints from well-paid City workers about the government’s bonus tax are really directed at employers, not the Treasury,” Lord Myners claimed.

“It is a matter for bank boards and shareholders, not the government, to decide if bonus payments will be cut – the economics of the decision may have changed, but the choice still remains.’’

In practice, however, ministers hope that the levy will persuade banks to abstain from large bonus payments and use the money instead to build capital levels.

Lord Myners said the government’s reforms were aimed at ending the “culture of risk-taking and excessive rewards’’ and encouraging a banking system that is “economically and socially useful”.

It was important to rebuild banks so that were soundly managed, took an “appropriate” attitude to risk and performed “socially useful” functions, he argued.

John Varley, chief executive of Barclays, made a short speech in which he did not criticise the government directly.

However, he said pointedly that it was important for British banks’ competitiveness that ministers’ decisions were “consistent” around the world. So far, only France has followed the UK with a promise to impose a supertax on bank bonuses.

Colin Breed, a member of the Liberal Democrats’ Treasury team, said that part-nationalised RBS was in an “almost impossible position” because the government wanted it to improve its capital position and become more cautious – while insisting it maintain lending to households and small and medium-sized enterprises.

Lord Myners insisted that the credit situation for SMEs had improved.

“I’m increasingly noticing that the fall in lending to SMEs is lately a function of demand rather than supply and the willingness to supply,” he said. “Letters I have been getting recently are less about the availability of credit than the cost of credit.”

Stephen Alambritis, spokesman for the Federation of Small Businesses, told the Financial Times that the high rates being charged by banks, at as much as 7 or 8 per cent annually, were a serious problem for companies. Banks were making huge margins given that the Bank of England base rate was only 0.5 per cent.

“Our members are saying the majority are seeing the cost of money has gone up by at least one percentage point in the last three months. They are really ratcheting up the cost,” he said. “Many are having to dip into their savings.”

The FSB had noticed banks making credit more easily available to start-up companies than to existing businesses, he said.

Sir Nicholas Macpherson, permanent secretary at the Treasury, told the public accounts committee later that lending to the corporate sector had been “disappointing”.

“We want them to lend to profitable propositions, anyone could lend money if you’re prepared to throw it down a drain,” he said.

Mr Macpherson said he still expected the government to eventually make a profit from its stakes in RBS and Lloyds.