LONDON - The British government hit bankers where it hurts yesterday by announcing a onetime 50 percent tax on bonus pay, dousing the holiday mood in the City, London's financial district.
Treasury chief Alistair Darling pulled populist strings in a pre-budget report to Parliament, urging bank directors to rebuild their financial strength and resume lending rather than spend money on bonus payments. "If they insist on paying substantial rewards, I am determined to claw money back for the taxpayer," he said.
The tax will be paid by the banks, not the employees, reducing the pot of money available for performance-based bonuses.
Financial experts said the impact of the bonus tax on government revenue will be slight.
Bankers warned that London would become less attractive to the financial services sector, a key driver of the city's glittering prosperity and Britain's economic growth in the boom years.
The country's banking association said business might go elsewhere. But the move seemed shrewd to political analysts, and members of the public who were interviewed said they were happy to see bankers punished.
"The government absolutely should tax them as much as they can," said Alan Holl, 38, of Bedford. "You should only get bonuses for excelling at your job, which is quite obviously not the case."
Advertising specialist Tim Cordell agreed: "Seems like a good thing," he said. "They earn too much money."
Robert Worcester, senior adviser to the Ipsos MORI polling firm, said "the British public is not just sullen, they are mad, angry, at the banks.
They feel the bankers have taken the taxpayers' money and stuffed it into their own pockets."
But he said the financial impact would be blunted as Britain wrestles with its worst recession since World War II and a soaring budget deficit: "The tax lawyers will have already figured out how to get around this thing," he said of the bonus tax.
Bankers see themselves as pawns in a political passion play as the fading Labor Party government seeks to revive its fortunes ahead of a general election by capitalizing on public anger over shaky institutions, which received taxpayer bailouts but handed out six- or seven-figure bonuses.
The bonus-tax announcement came as Darling acknowledged the economy will shrink more this year than predicted and also raised government borrowing forecasts.
The decision to impose a substantial tax on bonuses may be popular, but it marks the end of the successful "New Labor" political project that saw the party end its long-standing feud with the moneyed classes when it won a landslide election in 1997, said Andrew Russell, professor of politics at the University of Manchester.
"It takes them back into Old Labor territory as the high-taxation party that punishes high earnings," he said.
In the United States, attempts to impose a similar tax have fallen by the wayside.
The House voted in March to impose a 90 percent tax on bonuses to executives of companies that received at least $5 billion in federal bailout money, but a similar effort in the Senate to pass a 70 percent tax covering a wider range of companies faltered.
There are no current plans to revive efforts to step up taxes on bonuses.
Opposition politicians, the banking industry, and economists said the British tax, to be levied on 2009 discretionary bonuses of more than 25,000 pounds ($40,800), was little more than a political fudge that would not raise much revenue and could damage London's standing as a business-friendly global banking center.
"Viewed from abroad, London may well look now like a significantly less attractive place to build a business," said British Bankers' Association chief executive Angela Knight.
The opposition Conservatives, who have called for quicker action to bring down the deficit, have pledged to rewrite the budget within 50 days if they win the election.
Three more men were convicted in London yesterday of involvement in a plot to blow up transatlantic passenger jets using liquid explosives, bringing to six the total number convicted.
Disclosure of the plot in August 2006 caused massive disruptions at London's Heathrow Airport and sparked sweeping restrictions for passengers carrying liquids or gels. Many of the restrictions remain in place
to this day.
Adam Khatib, 22, was convicted of plotting with Abdulla Ahmed Ali, who in September was sentenced to 40 years in prison for leading a team that planned to down at least seven transatlantic flights in simultaneous attacks that officials said would have killed thousands.
Found guilty yesterday of lesser charges were Mohammed Shamin Uddin, 39, and Nabeel Hussain, 25.
In September, three other men - Assad Sarwar, Tanvir Hussain, and Umar Islam - were convicted of playing key roles, along with Ali, in preparing the attacks.
- Associated Press