Oakeshott: New tax only way to end bank bonus culture

A Liberal Democrat Treasury spokesman has called for a new tax on bonuses  to be placed on banks. Lord Oakeshott’s call came after the Royal Bank of Scotland’s chairman claimed that regulation was the only way to restrain the annual bonus bonanza in the financial services industry.  Sir Philip Hampton admitted that the bank was “paying a lot of people who aren’t worth it” and concluded that, whilst RBS  had made changes to the structure of bonus deals to avoid rewards for failure, “My own view is it can probably only be decisively solved through regulation”.

After industry commentators estimated this year’s bonus pot at £7bn, Lord Oakeshott claimed that the government should reintroduce the previous government’s ‘one-off’ tax on bonuses, which brought over £3bn to the exchequer. Speaking the day after David Cameron acknowledged the public’s anger over bonuses and added his support to the Chancellor’s tougher attitude to both bonuses and bank lending,  Oakeshott said:

As the prime minister has made clear, the banks are still paying ever bigger bonuses and not lending to small businesses. The answer must be to take immediate action on bonuses and the obvious way is to have a much tougher bonus tax than Labour’s feeble feather-duster and much stricter net lending targets to small and medium-sized businesses while we wait for the banking commission to recommend more radical reform.

Lord Oakeshott also commented on the need to introduce regulation, to remove the fear of any bank provoking a staff exodus by making the first move in reforming bonus structures, saying:

Responsible bankers like Sir Philip Hampton openly admit the bonus merry-go-round is spinning far too fast but no one will risk being the first to get off.

The coalition’s programme for government  promised “We will bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector; in developing these proposals, we will ensure they are effective in reducing risk”, but as yet no measures have been brought forward.  The Treasury is also planning to raise up to £2bn a year through its levy on bank balance sheets.

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10 Comments

  • I would tax all bank bonuses at 100%! (And no, I am not joking!)

  • The £7bn is great news. The taxpayer will get around £4bn of this which will help to reduce the deficit.
    The alternative is that the banks will keep the money – less taxes and more profits for the banks the majority of whom are foreign owned.
    The City contributes billions of pounds a year to the UK economy and is our biggest single source of foreign currency. Lib Dems should stop this absurd vendatta against it.

  • Tobin Tax clearly isn’t the answer – it’s certainly not feasible to impose one unilaterally, without agreement with all other major international centres, but even if it were, it wouldn’t be desirable: the cost would fall not on banks & bankers but on businesses and individuals undertaking the underlying transactions (eg mortgages, buying currency for overseas travel, UK companies that export overseas etc etc). Continuing to tax bank bonuses is a much better and more progressive idea.

  • James from Durham 6th Oct '10 - 1:42pm

    Instead of “The City contributes billions of pounds a year to the UK economy”, how about “the last governments have given the city a stranglehold over the economy and government”?

  • @Geoffrey – oh dear you are talking nonsense. most of the billions are in loan guarantees which the bansk are paying for and which aren’t going to be needed. The rest in in equity stakes which are likley to show a profit.

    The UK is the second largest financial centre and the leader in a number of other areas like f/x trading. Why on earth would be introduce the Tobin tax which would affect us more than anyone else apart form the US?

  • @ SMcG
    Isn’t the 4 Bill amount a tad optimistic? Surely a sizable amount of the 7 will go to the PBI who are only basic rate tax payers?

  • Patrick Smith 6th Oct '10 - 5:58pm

    Lord Okeshott Treasury Spokesman is right to demand a tax on the absurd levels of this inflated round of bank bonuses who are due to rake in £7B at a time of the highest post WW2 austerity measures foistered on ordinary earners, by them and a profligate 13 year reign of Labour and a mess now inherited by a responsible `Coalition Government’.

    Has n`t the `Coalition Government’ PM said that now that the bankers have been publically bailed out by the ordinary taxpayer they have the broadest shoulders and should pay back?

    Surely,bankers must now contribute to paying off their part in the `National Deficit and are expected by the basic rate tax payers to lend to beleagurered small businesses.?

  • Liberal Eye 6th Oct '10 - 6:14pm

    The question we should be asking is how the banks get to have £7bn available to pay out in bonuses over and above the profit they will keep.

    In most businesses one would normally expect margins and hence profit to come under pressure as the market matures but it doesn’t work like that in banking. The banks would argue that this is because they are constantly innovating, developing new financial products to lubricate the wheels of commerce and industry.

    Well, they would say that wouldn’t they! The difficulty is that their ‘innovation’ too often takes the form of newer, cleverer ways to rip off their customers whether by tricky fine print on credit card terms and conditions or CDSs and other financial instruments in the City. We are used to thinking of innovation as something that serves a public good and so it does in many cases – but not, by and large, in banking.

    The result is that too much of what they do is based on looting which is mostly legal but certainly immoral. (In the USA where things are rather more ‘advanced’ then here the majority of mortgages written in the boom years have turned out to be fraudulent so even that fine line was overstepped). As a society we should worry about a situation where legality and morality are not on speaking terms.

    So yes, the City banks are hugely profitable, but that is because they have discovered ways of hoovering up the profit earned by a small business in Rotherham or the interest on a pensioner’s savings in Torbay and moving it soundlessly into their own coffers.

    For the majority of us this amounts to the stealthiest of all stealth taxes – but for private benefit! We have seen a huge fuss the last few days over savings of £1bn on family allowances but this is many, many times bigger.

  • @Chris -Sh
    I suspect relatively little will go to the basic rate taxpayers. and don’t forget that there is 12.8% NI which the employer pays as well as the additional 1% for higher rate earners

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