Bank bonus tax needs follow up measures to change bonus culture
The one-off 50% tax on bank bonuses is welcome. Setting the qualifying level at median earnings underlines the absurdity of the fact that so many working in the City earn so many times more than average earners for doing – well, a variety of things, including contributing to the greatest financial crisis since the Great Depression.
However, if the Government wants to bring about a permanent change in the scale of City bonuses it will need to follow up this one-off tax with stronger, longer-term measures.
The Pre-Budget Report says that the Government’s intention is that in the longer-term remuneration practice will be changed by the corporate governance changes recommended by Sir David Walker in his Review of Bank Governance and measures being introduced in the Financial Services Bill currently passing through Parliament.
However, Sir David Walker’s report specifically ruled out measures to tackle the level of bank bonuses, confining its recommendations to issues surrounding disclosure and better alignment with risk management. Much of the discussion about bank bonuses has been concerned with the relationship between incentives and risk; while this is clearly vitally important, it is not the only issue of concern, and the public are rightly outraged by the level of remuneration in a sector that has caused such damage to the rest of the economy.
The 50% bank bonus tax should be the first step of a series of measures to bring about a permanent adjustment in top City pay to bring it more in line with earnings in the rest of the economy.