Alistair Darling admitted on Wednesday that Britain’s controversial supertax on bankers’ bonuses had failed to change the industry’s behavior over pay as “imaginative” financiers devised ways to avoid it.
The former Labour chancellor of the exchequer, who introduced the levy last year amid an unprecedented outcry over bank pay, said he thought it was unlikely that the tax would be reinstated by the current Con-Lib coalition government.
However, he warned the industry that it faced equally unpopular reforms unless it was more “sensitive” to the public’s concerns following the worst financial crisis in generations.
“I think it will be a one-off thing because, frankly, the very people you are after here are very good at getting out of these things and . . . will find all sorts of imaginative ways of avoiding it in the future,” Mr Darling said at a financial services conference sponsored by Nomura, the Japanese investment bank.
“But what I wanted to do was send a message to them that we all live in the same world together,” he said.
The 50 percent tax on bonuses over £25,000 ($38,500) was deeply unpopular in the City of London amid complaints that the industry would hemorrhage talent to New York, Switzerland and Asia, where no similar measures were put in place.
Those fears were buttressed this week by the news that Credit Suisse is awarding a one-off bonus in September to about 400 senior employees in London after slashing its UK bonus pool for 2009 in response to the tax.
The payments, which Credit Suisse executives say were necessary to remain competitive with US and European banks which shouldered the levy institutionally rather than pass it on to their employees, will not be subject to the supertax, which expired in April.
The level of bonuses is causing disquiet in the coalition and is especially awkward for Liberal Democrats, who want to prove that the pain of budget cuts is being spread fairly.
However, the Treasury is anxious about taking further unilateral measures to rein in perceived City excess beyond the £2 billion bank levy announced in the coalition’s June Budget. A new bonus tax is not currently on the table.
Mr Darling, who is stepping down from front bench politics next month, said that it would be difficult for the UK and other governments to take “rational decisions” as long as there are issues about banks, like pay, that jar with the public.
“You just need to be sensitive,” the former chancellor said. “Otherwise I fear that it holds the risk that someone is going to do something which, in the cold light of day, a few years down the line, maybe wasn’t such a good idea.”