Politicians wade into new bank bonus row

Plans by some investment banks to delay bonuses until after the top rate of income tax drops in April have been attacked by politicians.

Goldman Sachs is said to be among a handful of banks considering delaying UK bonus payouts until after April 6th, when the top rate falls from 50 to 45%.

The Financial Times reported that the bonuses in question covered the period from 2009 - 2011.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Many other banks have decided such a move would not be worthwhile, given the inevitable reputational fall-out if they were portrayed as avoiding tax to boost bonuses.

Goldman Sachs already has form in this area, having paid out £40m-worth of bonuses before the end of 2012 to avoid tax rises ahead of a deal between US politicians to avert the 'fiscal cliff'.

Pat McFadden, a Labour member of the Treasury select committee, said the scheme made "a mockery of the government rhetoric on the 50p rate".

One of his colleagues, shadow treasury minister Chris Leslie, laid the responsibility at the feet of David Cameron and George Osborne.

"They have refused to repeat Labour's bank bonus tax and pre-announced a £3bn income tax cut for the richest people in the country, giving them the opportunity to delay income and bonuses until April," he said.

Meanwhile John Hemming, a Liberal Democrat MP, said Goldman Sachs "shouldn't expect any government contracts" if it went through with the plan.

Hemming's threat is one that could have serious implications, despite there being no suggestion that what the banks are considering is illegal.

The government is working hard to clamp down on tax avoidance.

The recent Autumn Statement included the provision that: "The Cabinet Office and HMRC will consult on the use of the procurement process to deter tax avoidance and evasion and the proposed definition of key concepts, with a view to the new arrangements coming into effect from 1 April 2013."

MM