City bonuses set to rise following withdrawal of payroll tax

A new study has shown that Alistair Darling’s ‘bankers’ bonus tax’ reduced the amount paid out in City bonuses, reports Left Foot Forward’s Claire French.

A new study has shown that Alistair Darling’s ‘bankers’ bonus tax‘ reduced the amount paid out in City bonuses. But research suggests that bonuses will rise again following its withdrawal.

Research published today by the Centre for Business and Economic Research (CBER) shows that City bonuses fell in 2010 by 5 per cent to £6.9 billion. A spokesperson for CBER told Left Foot Forward that there is evidence to show that banks have reduced the size of bonuses to avoid paying the tax – a sign of the policy’s success. The research comes as RBS boss, Sir Philip Hampton, revealed that the bank was “paying a lot of people who aren’t worth it”.

The chart below shows that following this year’s dip, bonuses are set to rise following the removal of Darling’s supertax. By 2014, bonuses will be close to their pre-crash peak.

For the first time this year, more than half of City bonuses have been paid to the Treasury due to the 50p tax rate and increased National Insurance Contributions. In addition, the temporary bankers’ bonus tax, set by Alistair Darling from 9th December 2009 until 5th April 2010, is projected to raise £3.5 billion.

Mr Osborne yesterday bashed the bankers without setting any policy to achieve his aims. He told the Conservative Party conference:

“I want to see genuine talent rewarded. But we will not allow money to flow unimpeded out of those banks into huge bonuses if that means money is not also flowing out in credit to the small businesses who did nothing to cause this crash.”

But Mr Osborne does not have any plans to continue the payroll tax, which raised revenue and changed behaviour.

Instead, the Chancellor introduced an annual £2bn levy on British banks in his Budget speech in June – accounting for 0.04 per cent of the total balance of British banks. But with the levy bringing in £1.5 billion less than the payroll tax, the IMF has called for the levy to be tripled. The CEBR research shows that it will do little to depress bonus levels.

Greg Beales, former member of Downing Street policy directorate, tweeted earlier that half of the bonus tax would pay for the child benefit cut that the Chancellor announced yesterday.

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