Britain's chancellor considers tax on bankers' bonuses

08:14, December 08, 2009      

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Britain's Chancellor of the Exchequer Alistair Darling is considering introducing a tax on bankers' bonuses, it was revealed Monday.

Darling, who is Britain's Finance Minister, will publish a pre-budget report on Wednesday.

Darling has told his Treasury officials to make plans to target bankers with a windfall tax. This would stem public unrest at the profits banks are making in the wake of the financial turmoil which saw some of them being bailed out by public money, and further unrest at the high bonuses that some bankers get paid.

It is believed that Darling has two options -- first a tax on bankers' bonuses, and second a tax on banks' profits.

If either of these measures is carried out it would apply to banks operating in Britain, including foreign banks. The tax could be temporary and could bring in more than 1 billion pounds a year.

Each winter, before the end of the year, the chancellor delivers in person a pre-budget report, which is a financial statement, to Parliament. In it, he reviews circumstances since the last budget, which is normally in March of the same year, and puts forward proposals for the next budget, which will be in March the next year.

This year's pre-budget report comes at a crucial time, as Britain slowly makes its way out of the most severe recession in living memory and as the political parties ready themselves for the certainty of a general election which will be held no later than May next year.

What the chancellor says he will do, or what he does not do, may well have a big impact on how the ruling Labor Party fares at the next general election.

There is widespread disquiet among voters at the sight of bankers being promised big bonuses by their employers when elsewhere many people have lost their jobs or had no pay rise. The disquiet is further fueled by the fact that the government bailed out several banks with huge injections of cash and credit to save them from collapsing.

One of the banks saved was the Royal Bank of Scotland (RBS). It's now 80 percent owned by the British government, in effect making Darling the major shareholder.

The RBS hit the news last week when its board of directors threatened that they would resign if they could not pay bonuses to their top-performing investment bankers. They argued that they had to pay the market rate to attract the best performers, and that with good performers they would be able to pay off their debt to the taxpayer quicker.

Lord Peter Mandelson, the British business secretary and a senior member of Prime Minister Gordon Brown's Cabinet, said that he understood the misgivings of the RBS.

Mandelson last week said in an interview with the BBC: "I understand the point of view that RBS directors are expressing. They have to remain competitive in the market in recruiting senior executives and that is why it's important that all the banks are equally restrained and RBS is not singled out, but nobody is suggesting that that will happen."

The City Minister, the government minister responsible for the financial sector in the City of London, Lord Myners said in the House of Lords that the threat by the RBS board was "a silly line for them to adopt and rather an unpatriotic one and really rather shameful."

Last week Darling also came under pressure as another one of the banks saved from collapse with a handout from public funds said it too would be rewarding some of its top staff with huge bonuses.

Lloyds TSB Bank, announced Friday that it wanted to pay massive bonuses to about 200 executives, who are likely to get one-off payments of up to 80 percent of their salaries.

The bank was bailed out by taxpayers in 2008, with a multi-billion pound handout and is now 43 percent owned by the taxpayer.

The bank said that it had negotiated the bonuses with shareholders earlier this year as it began its merger with the struggling HBOS. It also said that the British government had backed the bonus package. Lloyds TSB stressed that payments would be in shares and would be made over the next three years.

HBOS was formed in 2001 by the merger of the Bank of Scotland and Halifax Building Society. It was taken over by Lloyds TSB in January 2009.

Britain is still mired in recession, with six straight quarters of contraction in GDP. The fall of -0.3 percent in the third quarter is a vast improvement on the -2.5 percent contraction of the first quarter of 2009, but it leaves the country lagging behind other developing countries which have already moved out of recession and are taking faltering steps on the road to recovery via growth.

The euro sector, the 16 European Union countries which share the euro, saw GDP increase by 0.3 percent in the third quarter of 2009. This was the first step out of recession for the Euro nations, which had posted -0.2 percent growth for the second quarter of 2009.

In the United States, the third quarter results were equally optimistic. The United States posted a 0.7 percent growth in GDP for Q3, as against a -0.2 percent fall for Q2. Japan too has begun to sluggishly move out of recession, with third quarter growth of 1.2 percent, this time building on a 0.7 percent growth in the second quarter.

Source: Xinhua
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