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Bonus taxes won’t hit £500m mark

Industry experts have branded Chancellor Alistair Darling’s decision to impose a 50 per cent tax on banker bonuses as little more than political posturing which will fail to raise the predicted revenue.

The tax will affect banks offering over £25,000 in individual bonuses, with the one-off levy expected to raise £500m. The tax, which effects all discretionary bonus awards, will take effect from December 2009 to April 5, 2010.Taking into account income tax and National Insurance, there is now an effective 76 per cent tax rate on bonuses.

Seven Investment Management director Justin Urquhart Stewart believes the move is little more than a “pathetic vengeance” on the sector.

Urquhart Stewart says it is the investment managers who earn £7m a year rather than bank managers, who should bare the brunt of any bonuses curb.

He says: “The banks may find ways around it whether it be deferring bonuses for a year or raising salaries. I do not think it will raise anything near the £500m being targeted and will be nothing more than a short-term measure.”

Earlier this month, the directors of the Royal Bank of Scotland threatened to quit if the Treasury blocked them paying about £1.5bn in bonuses to staff in its investment arm.

Schroders head of UK equities Richard Buxton says the move is little more than a political gesture.

He says: “It is only levied if the City firms choose to pay bon-uses, so they may retain the capital in their businesses and seek to re-address compensation in future years. In the event that bonuses are paid, the levy is expected to raise around £500m, so it is not a significant amount in the context of the £178bn deficit. Acting unilaterally outside the previously agreed G20 remuneration guidelines risks damaging inward investment to the City of London, which might be deemed unhelpful to the longer-term contribution that City revenues and taxes will make to deficit reduction.”

Skerritt Consultants head of investment Andy Merricks says: “I think that the pantomime season has come early. I cannot see how this can work as a populist “bash a bank” movement. Emp-loyers will find different ways to remunerate staff and if they don’t the better members of staff will just leave. The UK’s biggest export is financial services and we are in danger of driving it away.”

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