LONDON — The British government announced a one-time tax on bankers’ bonuses as it laid out plans for the country’s ravaged economy ahead of a looming general election.
Treasury chief Alistair Darling said Wednesday it was payback time for banks that lost a combined 80 billion pounds (C$137 billion) last year and needed taxpayer-funded bailouts to stabilize the system.
The 50 per cent tax on bonuses above 25,000 pounds (C$42,790) could prove popular with the general public, with Britain the only major economy still in recession and Prime Minister Gordon Brown’s Labour party trailing the opposition Conservatives in opinion polls.
An election that must be called within six months.
“There are some banks who still believe their priority is to pay substantial bonuses to some already high-paid staff,” Darling told lawmakers as he delivered the government’s pre-budget report in Parliament.
“Their priority should be to rebuild their financial strength and to increase their lending,” he added. “If they insist on paying substantial rewards, I am determined to claw money back for the taxpayer.”
The tax will be imposed on the pool of bonuses paid by a bank, rather than individual payments, and it will be paid by the bank — not the recipient of the bonus.
Darling said that measures to keep people from avoiding the bonus tax would be introduced “with immediate effect.”
The move could cost Canadian banks, namely Royal Bank (TSX:RY), which has a significant London operation. A spokeswoman for Royal said the bank is still examining the government’s decision and declined to comment.
Canadian Bankers Association spokeswoman Maura Drew-Lytle noted that banks in Canada have largely avoided the difficulties that banks around the world.
“The whole discussion of reforms to bank compensation practices originated in an international context due to some practices in other countries which rewarded excessive risk taking,” she said.
The Labour government is under pressure to reduce its spiralling debt after Britain was hit hard by the global credit crisis.
Britain remains in recession, with Canada, the United States, Germany and Japan all already recording growth.
Darling on Wednesday downgraded his forecast for the economy this year, saying it will shrink by 4.75 per cent. That is significantly worse that the 3.25-2.75 per cent contraction he predicted at the time of the full annual budget in April.
He retained his forecast of gross domestic product growth of 1-1.5 per cent growth for next year, but also raised his 2009-2010 borrowing forecast slightly to 178 billion pounds, from 175 billion pounds previously.