16th January 2013
This type of plan was lambasted by the Governor the Bank of England Mervyn King as ‘depressing’ as he spoke to a Parliamentary committee yesterday though he didn’t mention the investment bank by name.
Although the move did not include bonuses for this year, the bank was considering delaying bonuses from what was effectively a backlog from 2009 through to 2011 for a few months more so they would benefit from the planned cut in the top rate of tax from 50 per cent to 45 per cent.
Although the bank never went public with the plans, it is now understood to have shelved them. In fact the paper reports that Treasury minister Sajid Javid had held telephone discussions with the bank on Tuesday just when the remuneration committee was meeting.
Any move by the bank could have proved politically toxic for the Government if a big investment bank was seen almost to be ‘gaming’ the system to benefit from tax cuts for the rich.
Mindful Money has three thoughts though the third is arguably the most important.
If the City were to change plans to take advantage of the 45 per cent tax cut, the Government would be extremely vulnerable to charges that it was helping the ‘undeserving’ rich rather than say entrepreneurs, who have risked their own cash, in building up their businesses.
This is yet another example of a more activist Bank of England that will seek to steer firms in the right direction with words as well as deeds. We expect more of the same from the new man Mark Carney as well.
We wonder however if one very important aspect of bonus issue gets missed. Goldman was wrong to consider shifting its bonuses to another tax year in these difficult times. But we may also be in danger of losing sight of the most significant reason why bonuses are at issue. It is because there is a big risk that they encourage an extremely short term approach from financial institutions which benefits neither them nor the economy.
Unfortunately it is also a lot more difficult to determine and, or so its seems, to enforce.