Super tax on banks unlikely to be a one-off as Chancellor plays with fire, says Julian Chillingworth, Chief Investment Officer, Rathbone Unit Trust Management.
"So the Chancellor has made it expensive for banks to pay out bonuses above £25,000? This is a populist measure that doesn’t convincingly address the core issue of bank lending and could be the first in a series of efforts to tar and feather the banks."
Effective immediately until April, 2010, a one-off 50% tax rate will be applied to discretionary bonuses over £25,000. This will be levied as a surcharge on the employer as opposed to the individual, in an attempt to force the banking sector to choose lending over expanding their capital base. However, this does risk a degree of wage inflation.
"The Chancellor may talk of diversifying the economy away from the financial services, but this isn’t going to happen overnight. Any more attempts to alienate the banks could result in a brain drain – a highly damaging development from what remains a vital contributor to GDP. Furthermore, the banks might circumvent this by increasing wages instead, thus adding to inflationary pressures. This might be where the real story is."
For further details please contact David Holloway, Head of Marketing at Rathbone Unit Trust Management (020 7399 0189).
The information contained in this note is for use by journalists and must not be circulated to private clients or to the general public. The opinions expressed here represent the views of the fund manager at the time of preparation and should not be interpreted as investment advice.
Rathbone Unit Trust Management Limited is authorised and regulated by the Financial Services Authority and a member of the IMA. A member of the Rathbone Group. Registered office: 159 New Bond Street, London W1S 2UD. Registered in England No. 2376568.