Banker Bonus in Firing Line Again

January 11, 2011 Taxation in UK

Prime Minister David CameronFresh debate has sparked up in the UK over the issue of the potential renewal of a tax on the bonus payments issued to bankers.

On January 11th the UK Labour Party leader Ed Miliband stated that he wishes to see the now-expired 50 percent tax on bakers’ bonus payments reinstated. At a press conference announcing his suggestion, Ed Miliband said, “…it cannot be right that, when workers face below-inflation pay increases, if they get any rise at all, and families see prices on the high street rising, senior bankers keep raking in bonuses that are more in one year than most people can earn in a lifetime.”

The banker’s bonus tax was originally announced in December 2009, and imposed a 50 percent levy on the bonus payments issued by UK banks to their staff. The levy was regarded as a temporary measure, and expired in April 2010.The tax was intended to minimize the occurrence of excessive annual bonus payments made by banks which fared poorly throughout the financial crisis. According to Ed Miliband, in the single year that the banker bonus tax had operated it had raised an approximate GBP 3.5 billion in revenues. A similar 50 percent tax could raise comparable revenues, as banks are currently expected to pay a total of GBP 7 billion in bonuses to their employees throughout the year 2011.

The Labour Party leader claimed that the new levy that will be imposed on banks in 2011 following the expiration of the bakers’ bonus tax was equivalent to a “tax cut for the financial sector.” He suggested that the banking levy, which will be charged on a bank’s balance sheet, is currently estimated to raise an approximate GBP 1.25 billion in its first year. Ed Milliband claimed that this is a much smaller, and an insignificant, amount compared to the potential of a bonus tax. The Government has already downplayed this accusation, stating that the balance sheet levy is expected to raise GBP 2.6 billion annually within a few years. In a previous statement Prime Minister David Cameron already suggested that if it is instated for a second year, the banker bonus tax would see reduced revenues and be subject to avoidance measures.

Photo by The Prime Minister’s Office