Today’s papers are full of what I know to be well-sourced speculation that the chancellor will introduce some levy on bankers’ bonuses in the pre-Budget report on Wednesday. We do not know exactly what the chancellor is planning. With the PBR not yet finalised, I am not sure the UK Treasury does either. But this is the position as I see it:
- Any new tax on bankers’ bonuses will not raise significant revenue. As such, the levy will be, as a senior Whitehall official put it, “all about fairness and signalling,” and to “fire a shot across the bows” of bankers’ battleships, rather than a soak the rich policy;
- It will therefore have a negligible effect on Britain’s 12.5 per cent budget deficit and the options for the Bank of England over monetary policy;
- It will not be levied on banks’ profits nor on the ability of banks to carry forward losses, since the Treasury says would tax the wrong banks and contradict the strategy of improving banks’ capital buffers;
- It will be one-off so as not to scare banks or bankers into leaving Britain;
- It will be targeted at the distributed profits of banks in bonuses, although the Treasury is aware of potential challenges under human rights legislation if the government is seen to be imposing discriminatory taxation;
- There will be separate action for specific problems in the Royal Bank of Scotland, where the government hold a majority stake and can curb bonus payments through corporate governance actions;
- There will be great administrative difficulties in introducing such a tax so it will be part of a large and wider package of anti-avoidance measures in the PBR.
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