THE windfall tax on bankers’ bonuses announced in yesterday’s Pre-Budget Report will disappoint many in business.

The measure is a 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. Even the Chancellor understands the adverse consequences his tax will have on international perceptions of Britain as a place to do business.

The economically highly productive financial services sector is internationally mobile. Many of the big players 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 quickly relocate to Frankfurt, Paris or anywhere offering a more benign regime.

While the 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 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 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.

Far from raising taxes, the national interest is better served by ensuring that Britain has an internationally competitive tax regime.