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4 December 2009

Bonuses: time for a windfall tax

Aren't you sick and tired of bankers ripping you off?

By Mehdi Hasan

Can there be a more shameless, selfish, self-centred, navel-gazing bunch of bankers than the RBS board? How on earth can a failed bank, bailed out to the tune of billions of pounds by taxpayers, now try to blackmail those same taxpayers, ie, their new shareholders? Vince Cable is right — call the bankers’ bluff!

But not only has the government been outflanked by the Tories in recent months, in populist anti-bonus rhetoric, if not in concrete or workable proposals, but it still can’t get its line straight. Harriet Harman says bonuses are “reckless” and “irresponsible” and Paul Myners says bankers need to “come back into the real world”, but Peter Mandelson says that he understands “the point of view that RBS directors are expressing”. He adds:

They say they have to remain competitive in the market in recruiting senior executives and that’s why it’s important that all the banks are equally restrained and that RBS is not singled out.

Meanwhile, the Prime Minister has belatedly “waded in“, saying:

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Nobody is being discriminated against because every bank is having to follow these procedures.

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Every country in the world is legislating to create new bonus policies where we restrict bonuses both in terms of the eligibility and also in terms of the conditions attached to bonuses.

But why has Brown only now spoken up about this? Back in September, when James and I interviewed him for the New Statesman, he said so little about bank bonuses that we didn’t even bother to include this passing line from the PM in the final piece:

I think what we’re all talking about is how you can reduce the proportion of bonuses in revenues and profits and how you can limit them in that way — what you’ve got to do is find the international rules that everybody can implement. You don’t want to go down to the last person in the last board in the last company . . . and I think that’s why the agreement in Pittsburgh will be one that can be applied across every nation.

The tone has changed — thankfully, if belatedly. It’s time for Brown and Darling and Mandelson and Harman to crack down on excessive bonuses. And if RBS, as Mandelson says, feels it is being “singled out”, then the simplest solution is a windfall tax on all bonuses, so that the boys at Barclays pay as much as the boys at RBS. In fact, back in August, I wrote that Brown should “impose a retrospective 90 per cent tax on all 2008/2009 UK bank bonuses”. I’m pleased that others are catching up. Here is the FT’s Martin Wolf this week:

Yet, regardless of the success of reforms of incentives in — and regulation of — the financial sector, it is reasonable to recoup not only the direct fiscal costs of saving banks but even some of the wider fiscal costs of the crisis. The time has come for some carefully judged populism. A one-off windfall tax on bonuses would make the pain ahead for society so very much more bearable. Try it: millions will love it.

Oh, and never forget the key statistic, revealed by the the National Audit Office this week: our glorious banks have received £850bn of taxpayer support to see them through the financial crisis. As the Metro points out:

The figure is more than the entire NHS budget, almost three times [in fact, it’s almost 23 times] the annual defence budget and more than five times what Britain spends every year on transport.

Shame on them.