London Bonus Tax - Have the English gone bonkers?

Suedesi

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Banks operating in Britain will be charged a 50 percent tax rate on employees' bonuses above 25,000 pounds ($41,000), finance minister Alistair Darling said on Wednesday.

The levy -- which will come into effect immediately and last until April 5 -- is designed to address public anger at large bonus payments made by banks who have been bailed out with taxpayers' money.

The bonus tax will apply to all banks, building societies and branches of foreign banks operating in Britain and includes all discretionary payments such as shares, options and temporary salary increases.

"This one-off levy is expected to yield 550 million pounds," Darling told parliament, adding that anti-avoidance measures would be introduced with immediate effect.

"This additional money will be used to pay for the extra measures, already announced, like help for the young and older unemployed to get back into work," he said.

The government hopes the move will encourage banks to use additional cash to shore up their capital bases, rather than pay high salaries. But banking groups have warned that penalising high earners in the financial sector will lead to an exodus of talent overseas.

European Central Bank Governing Council member Axel Weber said late on Tuesday that a windfall tax on bankers' bonuses would not be effective in encouraging less risky behaviour among banks in the long term.
 
All I got to say is that the NYC treasury will send a thank you letter to the UK parliament for all the extra tax revenue.
 
It is all smoke and mirrors TBH. Anyone getting a bonus of over 25k is probably on the highest tax rate anyway, so the extra tax in minimal.

I don't have a problem with large bonuses when justified: Sales type jobs or senior managers that exceed expectations etc. However the culture in the finance sector is such that even the undeserving were getting large bonuses, and that must stop.
 
Window dressing. The 'talent' can feck off any time it likes starting with the management at RBS.
 
Bonus Tax Has London Scoring Goal Against Itself: Matthew Lynn - Bloomberg.com

There were good arguments for finding ways to curb bonus payments at Royal Bank of Scotland Group Plc, along with other institutions that have had to be bailed out by the British taxpayer at great expense.

But attacking the bonus payments at the London offices of Goldman Sachs Group Inc. or UBS AG makes about as much sense as a Las Vegas croupier throwing the highest-rolling player at his roulette table out of the casino. It’s the casino that will suffer, not the gambler.

Take a look at how the math of this deal works out.

A big U.S. or Swiss bank sends lots of people to work in a glass and steel skyscraper in London. They trade away merrily. They may well be gambling with taxpayers’ money. But -- and this is the crucial point -- it is U.S. or Swiss taxpayer-backed money they are taking risks with, not British money.

If they get it wrong and go bust, then some government somewhere else will have to sort it out. It won’t be a blowup for the U.K. to fix, just as it wasn’t when New York-based Lehman Brothers Holdings Inc., which had a big office in London, went bust.

But if they make money, then the banks will have to pay corporate taxes in London. And all the employees will have to pay U.K. income taxes at 40 percent on their bonuses -- not to mention all the other property and sales taxes they have to pay for the privilege of living and working in London.

So, to get this straight, bankers play around with other people’s money. If they lose, someone else picks up the tab. If they win, the British government picks up a big slice of the winnings.

It’s a heads-I-win-tails-you-lose deal. And, for London, it is about the closest thing to risk-free money you can imagine.

And yet the British seem intent on getting rid of that money-making machine just because they are angry at having to rescue RBS.

:lol:
 
Until the banks pay back the bail out money, as far as i'm concerned any bonuses over £25,000 should be 100% tax.
 
x42bn6 said:
Considering we're talking billions in terms of the financial markets and money to be made, this is absolute peanuts.

Well done Darling. Well done Brown. Well done.
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It may not be a huge amount in the grand scheme of things, but it's still £500 million that would have otherwise had to come from somewhere else.

£500 million will help keep thousands of public sector workers in their jobs.
 
rednev said:
It may not be a huge amount in the grand scheme of things, but it's still £500 million that would have otherwise had to come from somewhere else.

£500 million will help keep thousands of public sector workers in their jobs.
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Imagine what 300 billion could have done.
 
For what it's worth, I think that this move is highly counter-productive (but probably a vote-winner with an angry public)… the most effective move should simply have been to allow undercapitalized “zombie” banks to fail as opposed to bailing them out with many trillions in taxpayer money.
 
Suedesi said:
For what it's worth, I think that this move is highly counter-productive (but probably a vote-winner with an angry public)… the most effective move should simply have been to allow undercapitalized “zombie” banks to fail as opposed to bailing them out with many trillions in taxpayer money.
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It's an attempt to appease angry voters, now this won't affect the top 1 percenters who will have their bonuses adjusted accordingly, it will affect the middle levels, the ones who actually work.
 
ThatOldRedMagic said:
Ah! Another post from the business equivalent of a corner shop proprietor...
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No i just believe in the free market and capitalism. Not the bastardised version were living in now. All we've done is prop up a failing system and all the majority of the money is still flowing eastwards to China with none heading back as we have nothing they want or need to buy. Check out your business history and you'll see examples of this in the past and you'll see what happens next. So shove your shit wit up your arse and actually explain why rewarding a failed institution instead of allowing it to die (as real capitalism shows, you take the highs and the lows) securing their assets , guaranteeing the jobs of the middle workers below to administrate the assets, getting rid of the dross at the top that caused the meltdown, securing mortgages and savings and moving onto the new companies that would have taken their places had free market rules applied.
 
Suedesi said:
For what it's worth, I think that this move is highly counter-productive (but probably a vote-winner with an angry public)… the most effective move should simply have been to allow undercapitalized “zombie” banks to fail as opposed to bailing them out with many trillions in taxpayer money.
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The effective move would be to get the banks back to doing what they're supposed to do ie supporting industry by having a a limited range of functions like lending money, futures, interest rate swaps and so on. Not playing casino shit with Bermudan swaps etc etc.
 
And when these people go to New York and stuff The USA's economy like they did ours will they thank them. Me thinks the lady does protest too much, please feel free to leave and when we don't miss you at all?

Bluff called.
 
gambit28 said:
No i just believe in the free market and capitalism. Not the bastardised version were living in now. All we've done is prop up a failing system and all the majority of the money is still flowing eastwards to China with none heading back as we have nothing they want or need to buy. Check out your business history and you'll see examples of this in the past and you'll see what happens next. So shove your shit wit up your arse and actually explain why rewarding a failed institution instead of allowing it to die (as real capitalism shows, you take the highs and the lows) securing their assets , guaranteeing the jobs of the middle workers below to administrate the assets, getting rid of the dross at the top that caused the meltdown, securing mortgages and savings and moving onto the new companies that would have taken their places had free market rules applied.
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Then what would you have liked to have seen? Propping up the banks was the single most important action undertaken this side of the second world war, it isn't simply a case of letting the bad banks fall, if one major bank had gone consumer confidence industry wide would have imploded and that would have led to every bank we have collapsing and in turn it would have spilled over internationally. Considering our economy has shrunk nearly 5% this year with every significant institution still standing and despite cutbacks still lending, where would we be if there were no banks at all? The pound would have plummeted in value to an absolute fraction of its value worth perhaps a few cents on the dollar, the economy basically would have been liquidated, and hyperinflation would have set in and who knows what mess we would be in now, we would be dreaming of having the situation we have now. That is what happens when you have banks one day and don't have them the next.

The idea that there is some mystical free market where authorities don't get involved at all is total nonsense and has never existed. The whole point of governments controlling the money supply and interest rates through central banks is the most obvious manifestation of how markets are kept in check. The US Government have a very long history of buyouts and takeovers despite their laissez-faire nature- in the seventies they bought out all American railways to prevent them from collapse and still run them at a loss of billions a year today, Chrysler were given loans of $1.5billion in 1980, after 9/11 $15billion in loans were provided to prop up the airlines in the US but this pales in comparison to Savings and Loans in '89 costing US taxpayers $300billion. There hasn't been a free market as you would percieve it since the aftermath of the panic of 1907, ironically some of the practices that were banned as a consequence since become legal again have been attributed to this current state of affairs we have.
 
Team Brian GB said:
Then what would you have liked to have seen? Propping up the banks was the single most important action undertaken this side of the second world war, it isn't simply a case of letting the bad banks fall, if one major bank had gone consumer confidence industry wide would have imploded and that would have led to every bank we have collapsing and in turn it would have spilled over internationally. Considering our economy has shrunk nearly 5% this year with every significant institution still standing and despite cutbacks still lending, where would we be if there were no banks at all? The pound would have plummeted in value to an absolute fraction of its value worth perhaps a few cents on the dollar, the economy basically would have been liquidated, and hyperinflation would have set in and who knows what mess we would be in now, we would be dreaming of having the situation we have now. That is what happens when you have banks one day and don't have them the next.

The idea that there is some mystical free market where authorities don't get involved at all is total nonsense and has never existed. The whole point of governments controlling the money supply and interest rates through central banks is the most obvious manifestation of how markets are kept in check. The US Government have a very long history of buyouts and takeovers despite their laissez-faire nature- in the seventies they bought out all American railways to prevent them from collapse and still run them at a loss of billions a year today, Chrysler were given loans of $1.5billion in 1980, after 9/11 $15billion in loans were provided to prop up the airlines in the US but this pales in comparison to Savings and Loans in '89 costing US taxpayers $300billion. There hasn't been a free market as you would percieve it since the aftermath of the panic of 1907, ironically some of the practices that were banned as a consequence since become legal again have been attributed to this current state of affairs we have.
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Excuse me were did I say the goverment shouldn't be involved, all I said they should have secured the banks assets, allowed them to continue and brought them under the wing of the bank of england, removed and in some cases prosecuted some of the boards for this mess and then sold the assets to the new or surviving banks that would have arisen. The finance industry had grown to big as an industry and in its profiteering instead of managing the money. We haven't given loans, the bailout money in the majority has been swallowed and allowed the finance companies to carry on as normal except they're refusing to give out loans and mortgages now as was agreed upon when they accepted the money. Even the Yanks goverment made sure they had more say in how the banks operate who accepted the bailout money, that some of the banks have now agreed to pay the money back so they can have free reign, whereas we just allow ours in the UK to carry on as normal. All the while the top 1% are still making money hand over fist whilst people are losing jobs and having their houses taken from them because they can't afford to make the repayments. Accountability has been removed and replaced with the word market confidence being the get out of jail free card, the market wouldn't give a shit wether a few of those responsible were prosecuted whilst the banks were allowed to continue. We have pretty much bankrupted the nation (goverment wise) in the hope that it will work. I pray it does as were fecked if the market takes a hit as bad again.

All the while were still not answering the question of our baseless economy which is incredibly vunerable as we have no maufacturing industry and are now buying the majority of the goods from China where as there is no money coming our way, the last time that happened to an economy it led to the downfall of the Soviets, the USA and the UK have used this as a tactic in the past to overthrow many a small goverment. If we don't answer that problem soon than the crash that will happen to our economy we'll be begging to join Europe.
 
All this is pointless anyway, as thanks to David Attenbrough. I now know were all fecked anyway.
 
gambit28 said:
explain why rewarding a failed institution instead of allowing it to die (as real capitalism shows, you take the highs and the lows) securing their assets , guaranteeing the jobs of the middle workers below to administrate the assets, getting rid of the dross at the top that caused the meltdown, securing mortgages and savings and moving onto the new companies that would have taken their places had free market rules applied.
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This is silly theorising. We know what happens when you let financial institutions die in a banking panic. Letting Lehman - a single investment bank - go bust almost took down the entire US financial system.

Your idea is fine and correct for normal times, but this was the financial equivalent of wartime, when wartime rules apply.
 
nickm said:
This is silly theorising. We know what happens when you let financial institutions die in a banking panic. Letting Lehman - a single investment bank - go bust almost took down the entire US financial system.

Your idea is fine and correct for normal times, but this was the financial equivalent of wartime, when wartime rules apply.
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Blaming the financial meltdown on the collapse of Lehman and not the the way the financial sector was handling its industry is theorising. Lehman was the start of the collapse, not the cause. If all the Financial intstitutions hadn't been so greedy and heeded the warnings that they had been sounded about 5 years previously is the reason the econonmy almost collapsed. They created this financial wartime environment it didn't just occur. Have you seen how much money those Lehman guys still have, as far as i'm concerned they should have their wealth redistributed into the system.
 
Anyway as i said earlier it doesn't matter in 40 years time were all buggered.
 
gambit28 said:
No i just believe in the free market and capitalism. Not the bastardised version were living in now. All we've done is prop up a failing system and all the majority of the money is still flowing eastwards to China with none heading back as we have nothing they want or need to buy. Check out your business history and you'll see examples of this in the past and you'll see what happens next. So shove your shit wit up your arse and actually explain why rewarding a failed institution instead of allowing it to die (as real capitalism shows, you take the highs and the lows) securing their assets , guaranteeing the jobs of the middle workers below to administrate the assets, getting rid of the dross at the top that caused the meltdown, securing mortgages and savings and moving onto the new companies that would have taken their places had free market rules applied.
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I'll do as you say then.

Ouch!!

Anyhow, expand on the part about all the money flowing east. I too am a free-market capitalist; the trouble is that it's a game of sink or swim. Economies shackled by the kind of dogma-driven profligacy which UK Plc has become under twelve years of Brownite, unreconstructed socialist economic suicide, are bound to be swept aside by the likes of go-get it, no-holds barred, let's make a fortune new kids who are right now carried along on the crest of a 'why-didn't-we-do-this-before' wave of ferocious dynamism.

And its worse than mere socialist fiscal ineptitude; there are the endless H&S, Human rights, diversity-insistent, PC and bog standard bureaucratic regulations weighing us down, like Ophelia's garland of weeds.

We're sunk, in short.
 
ThatOldRedMagic said:
Economies shackled by the kind of dogma-driven profligacy which UK Plc has become under twelve years of Brownite, unreconstructed socialist economic suicide, are bound to be swept aside by the likes of go-get it, no-holds barred, let's make a fortune new kids who are right now carried along on the crest of a 'why-didn't-we-do-this-before' wave of ferocious dynamism..
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:lol: This is surely sarcasm - it's exactly that kind of unfettered capitalism that got us in the shit.
 
Suedesi said:
the most effective move should simply have been to allow undercapitalized “zombie” banks to fail as opposed to bailing them out with many trillions in taxpayer money.
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Could you please elaborate on this, especially which banks do you reckon would have resisted to the crisis without the bail out ?
 
ThatOldRedMagic said:
I'll do as you say then.

Ouch!!

Anyhow, expand on the part about all the money flowing east. I too am a free-market capitalist; the trouble is that it's a game of sink or swim. Economies shackled by the kind of dogma-driven profligacy which UK Plc has become under twelve years of Brownite, unreconstructed socialist economic suicide, are bound to be swept aside by the likes of go-get it, no-holds barred, let's make a fortune new kids who are right now carried along on the crest of a 'why-didn't-we-do-this-before' wave of ferocious dynamism.

And its worse than mere socialist fiscal ineptitude; there are the endless H&S, Human rights, diversity-insistent, PC and bog standard bureaucratic regulations weighing us down, like Ophelia's garland of weeds.

We're sunk, in short.
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Yes thats it, were all DOOMED!!!
 
Suedesi said:
Sorry, I don't buy that.
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Easy to say that from the perspective of a year later.

Letting banks go to the wall is one of the key factors that caused the Great Depression.

"After the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. (In all, 9,000 banks failed during the 1930s)... Bank failures snowballed as desperate bankers called in loans, which the borrowers did not have time or money to repay. With future profits looking poor, capital investment and construction slowed or completely ceased. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending."

Credit is tight now - can you imagine how much worse it would be if many more banks had gone bust.
 
nickm said:
Easy to say that from the perspective of a year later.

Letting banks go to the wall is one of the key factors that caused the Great Depression.

"After the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. (In all, 9,000 banks failed during the 1930s)... Bank failures snowballed as desperate bankers called in loans, which the borrowers did not have time or money to repay. With future profits looking poor, capital investment and construction slowed or completely ceased. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending."

Credit is tight now - can you imagine how much worse it would be if many more banks had gone bust.
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Just for my information did the US have govt saving guarantees at the level we had ?
 
peterstorey said:
The effective move would be to get the banks back to doing what they're supposed to do ie supporting industry by having a a limited range of functions like lending money, futures, interest rate swaps and so on. Not playing casino shit with Bermudan swaps etc etc.
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First, I think the banks should be allowed to fail. The authorities should say, last year was a one-time deal and we're going to put these restrictions in place (balance sheet cannot exceed x, or leverage should not be greater then y, or working capital needs to be this - whatever). Once you remove that moral hazard, the banks should be allowed to engage in whatever activity that makes them money, as long as it's legal.

In terms of capping bonuses, I think it is really stupid. It disincentivizes people, it prevents upward mobility and worse yet it consolidates power for the fat cats that already made it aka Goodwins, Mozillos, Blankfeins, Chuck Princes, Stan Oneals of the world. That's like saying no more guns in the street, except the hundreds and thousands we already sold.

Conceptually I don’t have a problem with linking pay with performance, and although better practices should implemented, I don't think that is the govt's role.

I know compensation is a touchy subject - people may argue that bankers don't do shit etc. However, banking is a service, and whilst not actually 'manufacturing/producing' anything, moving money around is a revenue-generating (in most cases) activity/service. Banks need to pay their people that generate that revenue, just like United and Arsenal pay Rooney and Cesc 5million quid a year to kick a ball.

PS As a trader, I loathe I-bankers and think they're wankers by and large... however they do work a lot, sometimes more than 90 hours a week chasing deals and trying to drum up biznatch, so I can't really begrudge them getting paid. Still wankers mind.
 
nickm said:
Easy to say that from the perspective of a year later.

Letting banks go to the wall is one of the key factors that caused the Great Depression.

"After the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. (In all, 9,000 banks failed during the 1930s)... Bank failures snowballed as desperate bankers called in loans, which the borrowers did not have time or money to repay. With future profits looking poor, capital investment and construction slowed or completely ceased. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending."

Credit is tight now - can you imagine how much worse it would be if many more banks had gone bust.
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While certain aspects were necessary - like commercial paper program etc, propping up failing banks is not that clear cut a decision. Then again the fact all banks bar WFC have paid/agreed to pay back the TARP money + interest maybe proves that it was the right move.
 
Partizan said:
No, you just don't get it, its all the fault of evil Socialism. Now, repeat that mantra three times a day, and keep taking the tablets.
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What baffles me is that we've just seen IN BIG LETTERS what a feck up laissez faire capitalism leads to and yet most people just want to stick a plaster on it and carry on as before.
 
Suedesi said:
While certain aspects were necessary - like commercial paper program etc, propping up failing banks is not that clear cut a decision. Then again the fact all banks bar WFC have paid/agreed to pay back the TARP money + interest maybe proves that it was the right move.
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Thats only in the states and they're only doing it because agreeing to repay removes a lot of the goverment control that was held over them.
 
peterstorey said:
What baffles me is that we've just seen IN BIG LETTERS what a feck up laissez faire capitalism leads to and yet most people just want to stick a plaster on it and carry on as before.
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Most People are incapable of imagining a World organised along different principles to the one they inhabit on a daily basis. Capitalism has been the dominant culture for over two hundred years, its all most People have known for Generations, and large scale change scares the living crap out of them. The rich and their lapdogs, Politicians, media ect know this, and play on it. i'm afraid we're stuck with the beast for the forseeable future.

Who will be the first to mention Soviet Russia I wonder?
 
peterstorey said:
What baffles me is that we've just seen IN BIG LETTERS what a feck up laissez faire capitalism leads to and yet most people just want to stick a plaster on it and carry on as before.
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I completely agree with you - the system is broken and at some point it will have to unravel itself - the recently 'solution' of throwing more and more money at the problem until it goes away is just delaying the inevitable.
 
Anal expenses paid trip eh? Sound right up my alley
 
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