Merryn's Blog

Darling's ridiculous bonus tax won't work

Alistair Darling's bonus-busting supertax is ridiculous. It's far too easy to avoid, for one thing, and most bankers won't be paying a penny more in tax.

I wrote in the last issue of MoneyWeek magazine about a super tax on bank bonuses(if you're not already a subscriber, subscribe to MoneyWeek magazine). Won't work, I said. Too complicated and bound to be far too easy for clever bankers (and say what you like, they are mostly clever) to get around.

Clearly, Mr Darling didn't agree. His PBR speech introduced a supertax on all bonuses over £25,000 with the twist being that the money is to be paid not by the bankers but by the banks.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

However, already the whole thing looks a little bit ridiculous. Why? Because it is too easy to get around.

What leaps out, says Tony Bernstein of HW Fisher & Company chartered accountants, is that "an exception has been made for guaranteed bonuses." That means that the tax won't apply to a great many of the very top earners (guaranteed bonuses might sound like an oxymoron to non City folk but inside the City they are pretty standard) at all.

Advertisement - Article continues below

But even more ridiculous, the tax will apparently only apply until 5 April 2010 which means that the banks can get around it by the very simple expedient of delaying paying bonuses until after then which quite a few of them do already anyway.

There has been much talk in the last few days about how windfall taxes such as this will drive our bankers away. That wouldn't necessarily be a good thing (note that a UK resident earning £1m pays the same amount of income tax as 95 people making £20,000) but based on today's performance from Darling I don't think we have to worry about it too much.

Who's going to bother upping sticks from Notting Hill to Monaco when it is clear that, regardless of what Mr Darling and Mr Brown might tell their electorate, most bankers won't be paying a penny more in tax this year than they did last year.




How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
UK Economy

Britain has a new chancellor – get ready for a major spending splurge

The departure of Sajid Javid as chancellor and the appointment of Rishi Sunak marks a change in the style of our politics. John Stepek explains what's…
14 Feb 2020

Will Britain close its doors to immigrants post-Brexit?

Details have not yet been forthcoming, but Britain will soon have a new immigration policy. What will that mean for businesses and investors?
8 Feb 2020

Most Popular

Silver and other precious metals

You should all own some silver. Just don’t expect it to make you rich

Silver is cool, beautiful and immensely useful. But for investors it's the most frustrating of metals. Dominic Frisby explains why you should own some…
12 Feb 2020

Money Minute Wednesday 12 February: grim times for European industry

Today's Money Minute previews industrial production in the eurozone, plus the latest from America's central bank.
12 Feb 2020
Investment strategy

The secret to avoiding being panicked out of your portfolio

With the coronavirus continuing to occupy headlines, investors still aren’t sure how to react. But the one thing you mustn’t do is panic. Tim Price ex…
11 Feb 2020

Why investors shouldn’t overlook Europe

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, tackles investor questions around Europe’s economic outlook and the conseq…
6 Nov 2019