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PBR: Darling imposes 50% tax on banker bonuses

Chancellor Alistair Darling has imposed a 50 per cent tax on all banker bonuses over £25,000.

The Chancellor said it was only fair to impose this tax on banks who pay out more than £25,000 in individual bonuses because all UK banks have benefited from the taxpayers’ bailouts and fiscal measures.

The move was widely predicted today and is expected to raise £550m. It is a one-off levy.

Darling said: “This should be a time for banks to rebuild their capital base and become stronger.

“A tax on profits, as has been suggested, will prevent them from doing this. So I have decided against a windfall tax.”

He added: “However, there are some banks who still believe their priority is to pay substantial bonuses to their already high-paid staff.

“Their priority should be to rebuild their financial strength and increase their lending.

“So I am giving them a choice. They can use their profits to build up their capital base. But if they insist on paying substantial rewards, I am determined to claw money back for the taxpayer.

“I have decided to introduce from today a special one-off levy of 50 per cent on any individual discretionary bonus above £25,000. This will be paid by the bank not the bank employee.”

Darling said that high-paid bank staff would also have to pay, as usual, income tax at their top rate on any bonus they receive.

He said that “on a cautious assumption” the one-off levy is expected to yield £550m, which would be used to fund measures announced elsewhere in the pre-Budget report, like help for the young and older unemployed to get back into work.

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. HEre we go again, solutions that dont achieve the objective; in his speech he said he DIDNT want banks to spend money on bonuses but wanted them to “rebuild their capital base and lend money”, so, he brilliantly introduces a solution which, wait for it, REDUCES the money they will have left to rebuild their capital base and to lend – by taking more tax off them rathe than the individual recipient of the bonus; it doesnt seem to have any negative impact on the employees who receive the bonuses at all so theres no disincentive to the employees making the decisions. Incomprehensibly incompetent.

  2. is this small change compared to the money wasted by these guys,on FSA,cuangos and government woking groups?

  3. Surely this means banker’s bonuses are taxed at 80% as income tax at 50% and employer NI at 11ish% is paid on the residual 50%.
    80% tax is pretty hardcore. Poor bankers!

  4. I’m pretty sure you have you facts wrong Paul and the tax will surely in fact be levied from the employee receiving the bonus. Which seems almost pointless as they would pay 50% on all earnings over £150k anyway. And lets face it not many of them earn less than that!

  5. Paul, I’m not sure you have read it properly… if £100k is paid in a bonus then the bank’s balance sheet reduces by £100k (plus NIC). Darling will take £50k to leave £50k to be paid to the recipient of the bonus, on which heshe will pay tax at 40%, etc. Cost to the bank’s balance sheet is the same, it is the recipient that loses out. The question is, will Darling spend the money any better than the recipient of the bonus? I don’t agree with these fat bonuses but we can’t ignore the fact that eventually the bonus is spent thus oiling the wheels of the economy (even the cash spent on a ferrari cascades down to the masses eventually).

  6. Carl, Stephen
    I’m afraid Paul HAS read it right. The tax is levied directly on the bank, on 31 August 2010, and calculated on the bonuses paid out between now and 5 April 2010 – so no withholding from the employee.
    Cost to the bank of a £100k bonus: £100k bonus + 12.8k NIC + [50% x (100k – 25k)] 37.5k = 150.3k total.
    Cost to employee: [50% x £100k] 50k + 1% NIC = 51k
    Employee gets 49k at a cost to bank of 150.3k.

    Plus: unlike NIC, this tax isn’t relieveable for CT purposes, so will reduce bank’s b/s by the full amount.

  7. Glad to see Andrew understands fully, but why should the Banks be allowed to pay the bonuses, if they hadn’t have been bailed out surely they would have been trading whilst insolvent. What happened to a market economy?

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