PBR 09: Darling doesn't care if bankers duck bonus tax
The City may grumble but the chancellor wants it focused long-term instead of paying short-term bonuses
The chancellor did as he was expected and attacked bankers’ bonuses in this
week’s pre-Budget report. But the smart thinking says that Alistair Darling
doesn’t care if the banks attempt to duck the new tax Ð it will fit in with his
plans anyway.
The introduction of a 50% rate for a bank payroll tax on bonuses exceeding
£25,000, which is aimed at recouping £500m, has already seen
banks look to circumvent the new rules through bonus deferment or turning
bonuses into salary.
But Deloitte’s head of tax policy, Bill Dodwell, believes that, even if banks
planned to help staff avoid the rate, the new legislation would ultimately
achieve Darling’s desired effect – to make them consider paying bankers on
longer-term performance targets. The happy side effect of forcing bonus
deferrals means the capital base of the banks will be improved.
“[Darling] wants banks to rebuild their capital base by not paying out
bonuses at this stage,” said Dodwell.
“Banks with medium-term performance strategies and that give out bonuses in
shares won’t be affected. Given that it’s only effective over a four-month
period, I wouldn’t be surprised to see little tax collected.”
Ian Fleming, a managing director at A&M Taxand, said banks were already
looking at tax planning around the new requirements.
“How will the definitions of bank bonuses work in practice?” he said.
Banks will pore over employers’ contracts, looking at potentially turning
bonuses into salaries, he added.
Smith & Williamson’s James Hender believes the tax will fail to scare off
bankers from UK shores while satisfying the public’s urge for bankers to
be punished. Despite this, advisers would be busy with banks looking to avoid
the tax.
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“People will undoubtedly look for ways around this, and there’s
anti-avoidance legislation in place for this. My guess is it’s a warning shot to
stop them trying to work around,” said Hender.
However, Fleming was unimpressed with the new tax, saying it would harm UK
competitiveness.
“The overriding concern is how many measures such as this affect the global
view of the UK being competitive in financial services.”
A viewpoint agreed by BBA chief executive Angela Knight. “Viewed from abroad,
London may well look now like a significantly less attractive place to build a
business,” she said.