British banks hit with bonus tax

British government doesn't want to see bailout money in bankers' pockets. So it unloads a 50% tax.

By Kim Peterson Dec 9, 2009 3:23PM
Bank © Charles Smith/CorbisThe British government is fed up with banker bonuses -- particularly after giving the banking industry a massive taxpayer bailout during the credit crisis.

So now, the government is infuriating bankers by announcing an immediate 50% tax on bonuses of more than 25,000 pounds (or about $40,500). The "super-tax" will be paid for by the banks, not the employees who receive the bonuses.

Banks should be using money to rebuild their financial strength and increase lending, said Alistair Darling, the U.K. equivalent of the U.S. Treasury Secretary. "But if they insist on paying substantial rewards," he added, "I am determined to claw money back for the taxpayer."

The reactions to the move were twofold: Bankers and analysts said it would hurt the industry by making it less competitive. Cynics said that banks would just find a way around the new tax.

"There are infinite loopholes in the definitions of bonus and salary alone, making this an unenforceable tax," writes The Guardian newspaper.

Banks could simply up employee salaries, or compensate with more shares and options, writes The Guardian. They could give traders some unusual loans.

The British government is trying to quash that with "anti-avoidance" measures, and is particularly frowning on loans.

The tax is expected to raise about 550 million pounds, or about $890 million.

One thing is for sure: The U.K. experiment will be closely watched by governments and banks across the globe. And something tells me that creative tax accountants will get a lesson as well.




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