Merryn's Blog

Forget bankers' bonuses, tax bank profits at 100%

A tax on bankers' bonuses is a stupid idea on many levels. Better would be a proper windfall tax on profits. Make it 100% - and if the bankers don't like it, tough.

I have been sent an amusing little book called 101 Uses for A Useless Banker, full of the kind of cartoons that might make us all feel better about the way Britain's big banks appear to have semi-destroyed our economy.

It is a perfect stocking filler. But the truth is that these days the only ones really laughing are the bankers themselves.

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Over the last year, while the rest of us have been fretting about our jobs and the gradual erosion of our savings, they've been making bumper profits. Now they are planning to pay themselves bumper bonuses.

This is clearly wrong. Why? Because they are making their money from our money: it is not supernatural skill but near zero interest rates, quantitative easing and the implicit 'too big to fail' guarantee that has made 2008 super-profit time in the City.

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The question now is what we do about it. Gordon Brown's current suggestion is a windfall tax on bonus pools. This is stupid on so many levels it is hard to know where to begin. Let's try.

First, it is a ludicrous precedent to set taxing individuals simply because they happen to work in a particular profession.

Second, it will be extremely hard to implement. Bankers may on occasion be useless, but they aren't idiots. Go for a bonus tax and they'll all be backdating 400% salary rises and so on. Put an overworked civil servant up against a Goldman Sachs corporate financier and who do you think is going to win? Quite.

But the most irritating thing about the bonus tax idea is its lack of ambition. On Radio 4 this morning, it was suggested that the tax would raise a few hundred million. Some bankers have yachts worth more than that. You can imagine a generous partner at Goldman's taking care of the lot just because he can "I'll get this one lads, you can get the next."

So what's the answer? A proper windfall tax on profits, the windfall profits that bonuses are paid out of. Make it 100% and there will be no super-normal profits to pay super-normal bonuses out of. Job done.

I am not generally a believer in windfall taxes but this is not a normal situation this year's profits have been, to a large degree, funded by the tax payer. So why should we have to sit back and watch them fund the Notting Hill and Monaco property markets?

The bankers won't like it of course. But you know what? Any that really don't like it are surely more than welcome to make good their threats of last year and head for Dubai.

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