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British Taxman Whacks ‘The City’

By Larry Doyle on December 11, 2009 at 10:00 AM in Bailouts, Banks, Economy, Sense on Cents (Larry Doyle blog), Wall Street

You’re a mean one, Mr. Grinch…!!

Are British bankers headed to the pub early today to drown their sorrows? Little doubt, as the Chancellor of the Exchequer Alistair Darling (British equivalent to Treasury Secretary Tim Geithner) announced that year-end bonus pools for British banks will be hit with a one-time, top line tax of 50%!! Ouch!!

Bloomberg provides a brief synopsis this morning in writing, Darling Levies 50% Tax on U.K. Bank Bonuses Above 25,000 Pounds:

Chancellor of the Exchequer Alistair Darling said he will impose a one-time 50 percent tax on banks for all bonus payments of more than 25,000 pounds ($41,000).

The tax, effective from today until April 5, will be levied as a surcharge on the employer. It will apply to all banks and building societies operating in the U.K., including subsidiaries of foreign banks.

The Treasury estimates the tax will raise about 500 million pounds and affect about 20,000 bankers.

What does this mean? Take 50% off the top line of the bonus pool and then distribute the balance. Those bonus proceeds are then subject to the U.K.’s current tax rates, the maximum of which is right now 40%.
Add it all up and the effective tax rate for the majority of the bankers impacted is between 65 and 70%!!

What does the crowd in Washington and on Wall Street think about that?

While I am not one for increasing taxes, the fact is the British banks and the U.S. banks were saved by the taxpayers. This tax is merely a return of some of the taxpayers’ money.

While the bankers will view Darling as Mr. Grinch, do you think the unemployed laborer in the U.K. or here in America has any real sympathy for those in the City or on Wall Street?

Would the crowd in Washington have the stones to impose a similar one-time hit on Wall Street?

LD

  • jwrjr

    If Geithner/Ozero does something like this, the banks will find some way to pass it down to the customer. Businesses don’t need this, and consumers need it even less.

    • http://www.sonicninjakitty.wordpress.com Sonic Ninja Kitty

      You are so right, jwrjr. Matter of fact, they’ve already done this–it was called TARP (and TALF). TARP was supposed to fix our toxic asset problem (not fixed in the slightest a year later–surprise!) but instead, they handed the money over NO questions asked to all their banking buddies.

      Ha ha–American bankers are so much more ahead of the curve than bankers in other countries!

  • tango

    No, I doubt there will be much sympathy from the local unemployed person if he hears the bonuses are to be taxed at such a rate. That’s a lot of money.

    Ok, I don’t have enough information to know if it’s for payments made from now until April or also counts bonuses paid during this whole year. If only for payments from now until April 2010, if I was a bank, I’d just not do any bonus over the limit. Even if that means doing a quick employment contract change or addendum. I’d pay my people up to the limit (so don’t have to pay the 50% extra tax) and then the individual employee would only have to pay their nomal tax rate on the money received. Then next week I’d do a second bonus right below the limit and then a few days later, a third bonus and so forth. Sooner or later the government will catch on and make it a cumulative thing, but until then, the British banks could give it a go. OR even better, give a one time bonus of less than the cut off and then wait until April 6, 2010 and give the rest of the bonus. No 50% surcharge.

    Now if the bonus tax applies to all money paid so far this year plus going forward until April 2010, then I guess the banks will be stuck for previous payments and my dastardly screw the government out of money plans won’t work.

    Now, I’m an average Joe and thought up a few ways to stop them collecting money, can you imagine that the banks are working hard to figure out how to get around paying the surcharge too?

    • Patience

      While my initial reaction was It Couldn’t Have Happened To A Nicer [Group Of] Guy[s], methinks you’re correct, tango. CPAs in the UK are probably already working overtime to figure out ways to dodge this tax. And who knows, maybe the whole concept’s purpose in the first place is just political grandstanding, given the current public perception of bankers and their cozy relationship with government.

      I’m sick of bankers. While enjoying such cheap money these days, they’re nevertheless nicking us with high, ever-increasing fees yet paying virtually no interest on savings AND they’ve seemed to stop being in the business of lending money. In fact, I’ve heard some are going out of their way to find nit-picking reasons to call loans. Nice work if you can get it.

  • creeper

    “bonus pool”?!? For what? Trashing the economy while getting rich?

    No sympathy here.

    jwrjr, are you contending that those people should be paid off? Surely I misread you.

    • jwrjr

      I am simply pointing out that the banks won’t absorb those taxes. We will. If you can find some way to make the banks/executives eat the cost of those taxes, then go for it.

  • Retired

    The Brits are wimps. How about taxing everyone “just once” at the fifty percent rate for 2009? C’mon, Democratically-controlled Congress, do you have the guts to do that? If it works out in 2009, maybe we can try it “just one more year” in 2010. Hey, it worked with the death tax, now that is about to be permanent. “From each according to his abilities, to each according to his needs.” That is the philosphy of Obama and our current Congress.
    Fortunately for them, most Americans are so poorly educated now adays that we don’t even realize where that philosophy comes from.

  • hells kitchen

    My understanding is that some financial institutions already taken preemptive action by giving bonuses in forms of future redemption

  • Peggy Sue

    Neither the unemployed or [still] employed have any sympathy for the Wall St. crew. And Wall Street obviously knows that [Bloomberg reported the banksters were arming themselves because the poor piggies were a tad worried about the public's growing disgust].

    Will the WH and Congress follow suit? Maybe in some carefully crafted waltz where, with a wink and a nod, the banksters will be assured it’s all a temporary pantomime, a suitable distraction to keep the anger level down.

    Why? Because Washington and Wall St are joined at the hip, Siamese twins in crime.

  • JJ

    Wall Street and Congress can’t follow through since both are bought and paid for by the bankers.

  • JJ

    Wall Street and Congress can’t follow through since both are bought and paid for by the bankers.