By Michael Baxter 11 Dec 2009 [4 Comments | 371 views]
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And so the chancellor decided to tax bonuses so heavily that one assumes the spectre of bankers’ greed has been slain once and for all.
And while Alistair Darling’s Pre-Budget Report drew the wrath of the media, at least one move was loved by all (that’s if you ignore Boris Johnson). Al’s decision to impose a 50 per cent bonus tax, which remember comes on top of income tax and NIC, means that for some, at least, it’s like the late 1970s. Presumably, the tax on some bonuses will come in at around 80 per cent. Has a chancellor’s decision ever been so popular?
Then, just 24 hours later the ONS released a report which found that a mere 9 per cent of the country’s wealth was held by around half the population. And looking at the other end of the income scale, the richest 20 per cent of households hold 69 per cent of the country’s wealth.
The popular mood is changing. Before the days of Mrs Thatcher, the super rich paid income tax approaching 90 per cent. For two decades we looked back upon that era with incredulity. Peter Mandelson once said the Labour party had no problem with people becoming filthy rich. Those days are gone. Change is in the air. Suddenly people are questioning whether wealth created by the richest really does trickle down and benefit all. The country’s mood is coming round to the idea that income and wealth should be distributed more evenly.
The Darling plan would be suicidal if the UK acted alone. But actually Britain’s chancellor isn’t just bang on the money as far as the national mood is concerned, he is pretty close to the mark with regards to the global mood too.
It seems that in France the government has been keen to impose a bonus tax for some time, but was scared of the backlash this would unleash. Now it appears Mr Darling’s decision has changed that. The FT quoted a French official as saying: “The fact that London has introduced it has changed the landscape.” It is understood Nick Sarkozy is planning a bonus tax which will be almost identical to the one revealed by the chancellor.
As for Angela, Ms Merkel said the British plan had “charm”. The way is set for Germany to follow.
So what about the US? It’s all very well the British, French and Germans punishing bankers, but if the US doesn’t follow suit the banking talent will simply flood across the Atlantic.
It seems we can relax.
Goldman Sachs has caved in to public pressure. It had previously revealed plans to pay $16 billion in bonuses to staff. Well, it has backtracked. Instead it’s handing out restricted stock instead, that’s to say staff will be getting shares they can’t sell for five years.
So, bankers won’t flee London because they have nowhere else to go.
Except that isn’t true.
According to Bloomberg, the last decade has been one of startling performance for the BRIC countries – that’s Brazil, Russia, India and China, with Russia’s stocks measured in dollars jumping sevenfold. The worst performing stock exchange of the foursome was in China, where stocks doubled. Contrast that with the UK where the FTSE 100 is still way down on the all-time high set on 30 January 1999, when the index closed at 6930. For that matter, the Dow Jones is way down on the 11722 set on 14 January 2000, and way, way down on the all-time high of 14164 set on 9 October 2007.
According to Goldman Sachs, since 2007 no less than 45 per cent of global growth has come from the BRIC countries.
Writing in the FT, Gillian Tett argued that the real threat to the City’s dominance lies in the great emerging economies.
The reality is, while we take it in turns to take pot-shots at the City, we miss the wider truth. The next few years are set to see the global banking sector explode in size. The City could sit centre stage. London offers many advantages over its rivals in waiting.
In fact, so great are London’s advantages that the chancellor probably could get away with a modest City tax, ensuring the exchequer benefits from the City’s might.
But the tax on bonuses is a threat to that.
And in ten years’ time, when the UK sits way down the league of the world’s richest countries, when China, India, and Russia are all boasting larger economies, will the City still be the world’s financial hub? Or will we rue the day we punished it so hard for the greed that came before?
Let the bankers flee. There are plenty more where they came from. Banking is not a black art, it all well known & documented. Let them go, let them go forever. Those of us who slave for a living & love this sceptred isle will stay & enjoy our life here.
Michael, your style of writing is well suited to that erudite mag known as Private Eye. That is a compliment.
Yes , its true.
The greed – of the goverment – is unbelivable.
Not many people have the misfortune of living such materially stressful lives like the british.
“Banking Talent”; are these the guys who were responsible for all the stupid banking in the first place?
At one time, one would have said that Fred Goodwin was banking talent. How lucky his bank would have been if he had been part of a ‘brain drain’at an early age.
Anyone but Labour would have had my vote to tax bankers. But with a Government still mired in class war (Oh so 1930′s)with envy politics ruling brings visions of that socialist paradise known as the USRR.
Certainly the way Labour has, besides spending every spare dime and some, reduced our civil liberties at a rate which even Stalin would have admired brings us some way to that paradise.
Before long tax rates of 75% are probably not out of kilter. The money is needed to spend on more socialistic ideas and to plug the gaping black hole aka GB economics.