Vir Cantium

I'm right, you know …

Bank Off

So the Chancellor is to impose a super-tax on bankers bonuses. The mob will be pleased. The red herring is waved in front of the news agenda-setters for a little longer, and we all forget that we are the only G20 nation still in recession.

Yet it’s not a super-tax; it’s a super-super tax. What the non-accountants in the debate are not aware of is that these bonuses are already going to be taxed next year at an effective rate of up to 61% (or more) – even today, 41% is the going marginal rate. And let’s not forget the employers’ NIC usually charged at 12.8%. All of which means that these bonuses are already being taxed at considerably higher rates than if the money had stayed with the banks and been taxed, at corporation tax rates, as regular profit.

There is another angle to this also: the bonuses are ultimately dictated by the market – and a global market at that, which is unlikely to ever prove entirely captive to regulation. Pay under the odds, and your key people leave. If your key people and revenue earners leave, then what’s going to happen to your future earnings and thus your share price? And since we are all shareholders now in RBS and the like, shouldn’t we be pleased that those managing these businesses on our behalf are endeavouring to maximise our portfolio’s value?

Of course, what do I know? Better to ask that font of all economic knowledge, Vince Cable. Quoth he:

If we are looking for more tax money, the place to start is with the banks. Some are making very large sums on the back of a taxpayer guarantee and we should demand a fee for this – ten per cent of profits.

10%? I think they’ll be delighted with that – far less than 28% in corporation tax, which is the current basic rate payable, and that on top of the 74% the bonuses will be generating next year. And that’s not considering the dividends that UKFI will be collecting.

Vince … stick to economics; tax and finance clearly aren’t your strengths. Then again, we’re not even sure about the economics.
(Now back to the real work and the light blogging…)

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2 responses to “Bank Off

  1. futiledemocracy February 2, 2010 at 11:30 am

    The “you have to pay the best to get the best” annoys me every time it’s spoken.
    If those were the best people, if scum like Andy Hornby and Fred Goodwin were the “best people” then we’re in serious trouble.
    I wish Tories could just once admit that perhaps their obsession with the market, may have been a little misguided.

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