Relief All Round As Darling Makes The Banks Pay

The Evening Standard  –  11 Dec 2009

Every time the Chancellor makes a “price-sensitive” Parliamentary announcement, bankers’ eyes across the Square Mile are glued to the numerous television sets that hang down from the ceiling of the trading floor.

For once, the volume is turned up. As the Chancellor waxes lyrical there is a hushed silence across all investment banks’ research departments as equity analysts try to quickly ascertain the implications that the new measures could have on the sectors they cover.

Meanwhile, bond traders, strategists and economists desperately try to work out whether the Chancellor’s growth forecasts are plausible and what his measures could mean for interest rates. There is always an air of tension on these days but on Wednesday that tension was dramatically heightened because this time it was the bankers’ own wallets in the line of fire.

I watched Alistair “don’t call me” Darling’s Pre-Budget Report with a BBC News crew in The Red Herring pub in the heart of the City. I was surrounded by bankers who strangely enough didn’t appear too bothered about the reduction in the bingo tax or the “inefficient boiler scrappage scheme”.

There was only one question on the mind of these Cityboys – has Gordon Brown and his sidekick “Eyebrows” snatched our hard-earned moolah from us just when it looked like it was in the bag? They eyed up the Prime Minister sitting smugly in the House of Commons and wondered: Are we staring into the jowls of defeat?

Suddenly a hush descended on my fellow drinkers. Tarquin over in the corner knew that he’d find out in the next few minutes if he could afford that villa in Tuscany while Rupert’s mind drifted off to the lipstick-red Maserati he’d promised his fiancée for Christmas. Would they have to wait until 2011?

Then came the answer: A 50% one-off tax on discretionary bonuses above £25,000 that is to be levied at the level of the bank rather than on the individual banker.

A few Armani-clad chaps seemed angry and shouted mild obscenities whilst others turned away with a resigned shrug and continued their drinking.

A couple of boys in the corner ordered some bubbly though it was difficult to tell whether they were drowning their sorrows or celebrating the fact that it is their bank and not them who will face the tax burden.

And that’s the key issue. While the percentage is high and the £25K threshold ludicrously low (for God’s sake I earned a bonus twice that size in my second year of stock broking!), the fact remains that it is the bank that will pay the tax.

Of course, this will give bosses a damn good excuse to reduce the bonus pool dramatically this year but the direct impact on bankers’ wallets will be lessened.

Indeed, the banks will also do every clever move possible to avoid paying this tax – which could involve a temporary increase in basic salary to a written promise to double next year’s bonus.

After performing my TV duties I called up some of my ex-colleagues to deduce their thoughts on this latest bit of banker bashing.

They unanimously declared that this was a political move that would raise little revenue (perhaps £550 million) that was solely designed to win some cheap votes by a bankrupt Government facing a near-certain May 2010 election defeat. One called it “the Holy Grail – a popular tax”.

They also stated that there was no real justification for the tax and that many bankers would now reconsider London as their home base, especially if a Tobin tax was introduced too.

Yeah yeah yeah, while they all claimed hundreds of their colleagues were heading for Heathrow brandishing one-way tickets, they weren’t thinking of heading off themselves.

Indeed, if they were thinking of moving to Paris (and possibly New York) it now looks like there may be copy-cat windfall taxes over there anyway.

Personally, I believe that this tax is completely justified. The 2009 bonus pool for City bankers (estimated to be £6 billion this year, up 50% on 2008) is only so vast because of the crisis that the bankers themselves created.

Quantitative easing, near-zero interest rates, massive Government bond issuance (often required to bail out the banks) and corporate financial restructuring have all resulted in super-normal investment banking profits and are all a direct product of this banker-created crisis.

Just as Maggie Thatcher felt able to tax high street banks in 1981 because they benefitted from the high interest rates of the day so investment banks should forfeit some of their windfall profits today.

Let’s also not forget that the £850 billion pounds of taxpayers’ money that the Government put at risk to bail the banks out was effectively the manifestation of the unofficial insurance policy that “too big to fail” banks have been enjoying for many years.

The fact that bankers would not even have jobs but for this Government guarantee makes robbing the poor to give to the (already) rich even more unseemly.

Of course, when I made these points to my ex-colleagues they pointed out that I’d enjoyed 12 healthy bonuses during my City career and that I might not be quite so radical were I still working as a banker.

This is a good point but I like to believe that even if I were still working in the Square Mile I would be sufficiently aware of my good fortune as well as the justified public anger that I would see the sense of this windfall tax.

Well, I can pretend can’t I?