Even though the bonus supertax will bring more than £2.5bn into the UK’s coffers, fears of damaging London’s reputation as a financial centre mean the experiment is unlikely to be repeated.
When Alistair Darling, chancellor, announced a 50 per cent payroll tax on all bonuses greater than £25,000 in December, he insisted it was a “one-off” levy that would drive down bank payrolls and net the government £550m.
Instead, a Financial Times survey has found that 16 banks with significant London presences expect collectively to pay more than £2.5bn, netting the government about £1.5bn once reduced income tax and national insurance from City high-flyers is factored in.
However, the tax receipts are still significantly lower than the £4bn some in the City had predicted.
“The fact is that the banks were exaggerating the impact of this before the event,” says one government official. “The banks have changed their behaviour, they have cut their bonus pools somewhat and they have passed on some of the tax to their staff. There has been some restraint.”
Gordon Brown, prime minister, has already hinted that additional revenue raised from the bank bonus tax might be used to fund extra spending. He has also suggested that potential savings from lower-than-expected unemployment might be recycled.
However, Mr Darling wants to present a broadly fiscally neutral budget, fearing that any loosening would alarm the markets. He has argued against a fiscal tightening in 2010/11 because he fears it could stifle the recovery.
Treasury officials say Mr Darling “is not planning a giveaway Budget” but confirm that he is likely to use some of the bonus tax surplus to announce “small targeted measures” in his statement. Possible beneficiaries could include efforts to fight youth unemployment or to boost “industries of the future” – two key themes in Labour’s election manifesto.
Some in the City say Labour expected this result from the bonus tax – the structure of the tax allowed Mr Darling to say the government was cracking down on bonuses while simultaneously raising additional tax revenue. “They win either way,” says an executive at a big bank.
Even though the UK is expecting revenue to be tight, neither Mr Darling nor George Osborne, shadow chancellor, have given any indication that they might try to extend the bonus tax into next year.
Rob McIvor, spokesman for the Association for Financial Markets in Europe, says “London has to retain its global position and the key element is that you have to have predictability and proportionality” in taxation and regulation.
“What we would like is a commitment not to apply the bonus tax in the future, that it is a one-off,” he says.
Only France joined the UK in taxing 2009 bonuses, with its levy more narrowly focused on traders. BNP Paribas said it had paid €250m (£227m) to France and the UK, the bulk of it to France. Société Générale is paying roughly €135m to France, and HSBC has said it paid $45m to France.
So far, the US has resisted a bonus tax, but that could change if a bill introduced by Barbara Boxer and Jim Webb, Democratic senators, gains support. They hope to impose a 50 per cent tax on bonuses larger than $400,000 (£266,000) – the US president’s salary – paid for 2009 at institutions that received significant government assistance.
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