Already, Darling’s announcement has caused bankers and traders worldwide to call foul, saying that the tax will diminish London’s standing as a financial hub as many in high finance will take leave of the city for lesser-patrolled waters. It has also caused governments in Europe (Sarkozy’s France, in particular) to consider copycatting the tax. (Though there are those who think President Obama should step up and tax away, don’t look for Barack—who’s accepting the Nobel Peace Prize today—to instill anything similar anytime soon. It would simply be too risky of a political maneuver now that TARP has proven to be somewhat effective, and the likes of Bank of America, Citi and Wells Fargo are poised to get back to operating independently of Uncle Sam).
Meanwhile, others (largely the aforementioned Main Streeters in London), have applaudedthe move, saying it’s the least the U.K. government could do, considering that it handed over trillions of pounds to its largest banks to keep them afloat and said banks are planning to pay their employees millions upon millions of pounds in bonuses while many of their countrymen continue to struggle.
As many have noted, it’s necessary to point out that (1) The tax will not raise that much money (some 550 million pounds, a drop compared to the several trillion pounds loaned to banks and the growing British deficit) (2) Though the tax may not be literally that big, it is a big deal and could pave the way for similar tax hikes in the future; however, taxes are still quite small in the U.K. as compared to the rates that birds and blokes paid in the past—as Bloomberg pointed out yesterday, British taxpayers paid through the broken teeth in the 1970s when Mick Jagger and Keith Richards and the rest of their mates bailed to the south of France (where they recorded their legendary double LP “Exile on Main Street”) to avoid a top tax rate of more than 80 percent (3) The cries that executives will be running away from banking and into hedge funds, private equity funds and other buy-side positions are likely nothing but a head fake; jobs on the buy-side are not what you would call plentiful these days and (4) The tax is set to run out in April 2010, meaning many banks can wait to pay bonuses in May, increase salaries at the expense of bonuses or find, as they always do, other loopholes to bypass the tax to keep their ranks $atisfied.
Less than 48 hours ago U.K.’s Chancellor of the Exchequer Alistair Darling implemented a new 50 percent tax on all banking bonuses exceeding $40,750. The tax will not be paid by the individuals receiving the bonuses but by the banks the individuals work for (this refers to U.K.-based banks as well as foreign banks operating in the U.K., meaning the likes of Goldman Sachs, Morgan Stanley, J.P. Morgan and other U.S.-headquartered financial institutions with significant operations in Britain will have to abide as well).The move was made, it appears, to appeal to non-banker voters in the U.K. (Main Streeters in the City of London and throughout the U.K. are, understandably, quite ticked off at the banking class for getting them into the economic mess they now find themselves in). The move is also arguably the most significant made by a government in the battle over bonuses since the worldwide financial crisis began.