Stimulus costs become apparent
The chancellor of the Exchequer, Alistair Darling, announced a one-time tax on bank bonuses Wednesday, part of the government’s effort to shore up the still-weak British economy.
Banks will be charged a 50 percent tax on 2009 bonuses of more than £25,000, or $40,800. It will be imposed on the pool of bonuses paid by a bank, rather than individual payments, and it will be paid by the bank — not by the recipient of the bonus. It will take effect immediately and will affect banks’ 2009 profits.
The levy represents the most direct attack on bank bonuses anywhere in the world. All banks in Britain – including the London-based subsidiaries of foreign banks — will be affected, whether they took government funds or not.
“Last year banks made £80 billion in losses,” Mr. Darling said during a pre-budget speech to Parliament that was frequently interrupted by howls of protest from members of the opposition Conservative Party. “But if they insist on paying substantial rewards, I am determined to claw money back for the taxpayer.”
The tax measure was the highlight of a push by Mr. Darling to persuade voters in Britain, as well as investors at home and abroad, that the Labour Party has the ability to tackle Britain’s budget deficit, which at 13 percent of gross domestic product is among the highest in Europe.
In his speech, he said his government aimed to more than halve the deficit by 2013 through tax increases and sharp spending cuts.
His strong words on cutting the deficit come against a backdrop of increasing investor unease about the ability of governments everywhere to address deeply imbedded debt problems.
In Greece, where a new Socialist government is struggling to prove it is serious about reducing a deficit that in proportion to its economy is similar to Britain’s, the cost of insuring Greece’s sovereign debt continued its recent rise Wednesday.
The same was true in Dubai, where there is an increasing fear that other government-controlled entities beyond the troubled conglomerate Dubai World will have to restructure their debts.