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January 18, 2013 / politicsbitesize

Behavioural change

GoldmanSachsBankers and their enormous bonuses are never far from the headlines these days.  In many ways this week’s news about the next expected round was no exception.  On Monday the Independent reported that billions in bankers’ bonuses were to potentially be deferred until after April 6th in order to avoid paying the current 50p top rate of tax.

In the 2012 Budget the Chancellor, George Osborne, replaced the 50p top rate of tax with the new 45p rate that is due to come into force this April.   The reason given at the time by the treasury for reducing the amount of tax for those earning over £150,000 was that the new lower rate of tax would deter people from avoiding paying tax!  A year on and it seems that the banks are likely to be doing just that.

On Monday, it was reported that two top banks, Morgan Stanley and Goldman Sachs, were expected to delay the payment of bonuses to their top executives until after April, thus avoiding paying the top rate of tax. In fact, it is standard practice according to one senior City adviser who said: “When the 50p top rate on earnings above £150,000 was brought in by former Chancellor Alistair Darling a number of our clients paid their executives early to avoid it. I’d be absolutely amazed if it they didn’t delay payment this time around so their executives can take advantage of the lower tax rate.”

However, with all the focus in the last few years on the banking industry and its greedy practices, the pressure on the Chancellor and the banks to do the right thing has been enormous.  The momentum of high profile groups, such as the Robin Hood Tax campaign, has been growing since the financial crash of 2007/8, which exposed the dirty dealings of the banking sector.  David Hillman, spokesperson for the Robin Hood Tax campaign, said: “The Government should not stand idly by but must act to ensure the richest sector in the UK pays its fair share to save services and create jobs.”

At least one man listened to this call to action: Sir Mervyn King described the notion of paying out large bonuses after April as ‘depressing’.  As the boss of the Bank of England, his accusation that banks had misjudged the public anger that would be caused by this blatant method of tax avoidance was heard deep inside the heart of the City of London.  By Tuesday morning Goldman Sachs had officially announced that it had abandoned plans to defer payments.  It has been suggested that other banks will follow suit.

Bonuses as high as £1m per individual mean that the Treasury coffers will see a large influx of tax revenue over the coming months.  It also provides proof that the public’s call for change can exert enough pressure on the big banks to make them listen and potentially modify their behaviour.

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