WHILE it was heavily trailed that big bank bonuses would be hit with a windfall tax in today’s Pre-Budget Report, the move will, nevertheless, disappoint many in business.
The measure is your typical, knee-jerk, politician’s response to the on-going public clamour against the banking industry. It is a blatant attempt at courting popularity with voters, but it is also harmful. In his heart-of-hearts, even the chancellor understands the adverse consequences his tax will have on international perceptions of Britain as a place to do business.
What the British public needs to understand is that the economically highly productive financial services sector is a very competitive international industry. Many of the big employers in this sector are US, Japanese and European investment banks who operate on a global scale. Banks and their highly paid employees, who currently ply their trade in London, may now very easily and quickly up sticks and relocate to Frankfurt, Paris or anywhere else offering a more benign tax regime.
While the public’s desire to see bankers share some of the pain caused by the greedy practices that led to the credit crunch is understandable, everybody should remember that the Square Mile accounts for a huge proportion of the Treasury’s annual income. It pays for many of our hospitals, schools and other public services. The City is the goose that lays the golden egg.
Any state interference with private sector remuneration practices is bound to hamper competitiveness and is inappropriate in a free market.
Bankers’ bonuses may seem excessive, but it must be remembered that we are not talking here about the counter clerks or branch managers that most of us meet when we visit a high street branch. The highly talented people the investment banks are trying to recruit and retain could easily have forged alternative lucrative careers, such as law or medicine.
Far from raising taxes, the national interest is better served by nurturing this industry by ensuring that Britain has the most internationally competitive tax regime.
