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.

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

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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.

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.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.