Labour will announce plans on Wednesday to extend the reach of its bank bonus tax, amid anxiety in Downing Street that pay awards this week by state-controlled Royal Bank of Scotland and Lloyds Banking Group will stoke further public anger.
Ed Balls, shadow chancellor, has decided that Labour’s proposed tax should also cover “allowances” which are paid by banks to sidestep new EU rules limiting bonuses to twice annual salary.
“Of course the industry is horrified at the idea of the bonus tax, and extending it to allowances just makes that worse,” said a senior banking executive.
Mr Balls’s bank bonus tax would be a repeat of the one introduced by the last Labour government in 2009, which raised £3.4bn.
The Treasury would impose a 50 per cent levy on any discretionary bonus or bonus-like allowances above £25,000. The levy would be paid by the bank and individuals would then pay income tax on the bonus or allowances they received. Labour plans to reintroduce a 50 per cent top rate of income tax on earnings above £150,000 a year.
A series of banking scandals — from last year’s fines for foreign exchange market rigging to this month’s tax controversy at HSBC — make this year’s bonus round especially sensitive as it comes only weeks before the general election.
David Cameron’s allies are anxious that an £11m pay package for António Horta-Osório, Lloyds chief executive, will fuel disquiet about alleged excess in the banking sector, especially when close to 24 per cent of the bank is in state hands.
Mr Horta-Osório’s remuneration package — including a £7m share award — reflects his success in turning around the bank’s fortunes. Lloyds’ share price has tripled in the past three years, but senior Conservatives are nevertheless braced for political criticism.
Lloyds’ results are out on Friday and there is also expected to be criticism of any bonuses paid to staff at RBS, still majority-owned by the taxpayer, in spite of the fact that the bonus pool is expected to be sharply down.
The bonus policy at the two banks — rescued by the taxpayer in the 2008/9 financial crash — has to be approved by UK Financial Investments, the arm’s length body that handles taxpayer bank stakes, but will also have been agreed by George Osborne, chancellor.
HSBC has already been criticised by politicians and trade unions for paying Stuart Gulliver, its chief executive, £7.6m last year — down slightly from 2013 — in spite of a sharp fall in profits and a scandal over tax evasion at its Swiss arm.
Labour will seek to exploit the anti-bank public mood in a Commons debate on Wednesday, in which the party will restate its plan for the bank bonus tax to raise up to £2bn to fund a “jobs guarantee” for young people.
Ed Balls, shadow chancellor, has also called for a 10-year deferral regime for bonuses, allowing the regulator to claw back payments made to bankers subsequently found guilty of serious wrongdoing.
A Labour motion says bonuses should only be paid “for exceptional performance”, adding that overall payments this year should reflect “the banking scandals that have emerged in the last few months”.
Mr Balls has also decided that Labour’s bonus tax should also apply to “allowances paid by banks which attempt to get around the EU bonus cap”; the cap limits bonus payments to twice annual salary, provided shareholders have approved them.
A British Bankers’ Association spokesman said: “Since the financial crisis, there have been sweeping changes in the way bonuses are awarded and paid to bank staff. They are now largely deferred and subject to clawback if something goes wrong. The UK bonus pool has halved since 2009.”
Get alerts on Bank bonuses when a new story is published