The Government has indicated that it intends to cut its proposed bank levy after leading banks warned the Treasury that it could raise £3.9 billion a year by 2013 rather than the £2.5 billion estimated by the Treasury. And a group of Britain’s biggest banks are discussing whether they can reach a joint agreement to cut payouts in the upcoming season of bonus payments in January and February.
The two moves are likely to be linked, with the City under increasing pressure from ministers to reduce bonuses to avoid a further outbreak of public anger, and the Government attempting to placate the banking sector by reducing its proposed levy on their balance sheets.
The Government’s move comes just weeks after Chancellor George Osborne’s Comprehensive Spending Review promised that the levy would net the “maximum sustainable” tax revenue.
However, intensive lobbying by the City – saying the levy would drive banks elsewhere – looks to have forced a Government U-turn, despite the fact that similar scaremongering following the introduction of a 50 per cent super tax on bank bonuses by Mr Osborne’s predecessor Alistair Darling proved to be unfounded. The tax generated £3.5 billion – £3 billion more than the Treasury predicted. Labour has also proposed a higher bank levy to the coalition and a financial transaction tax that could raise between £7 billion and £10 billion.
The Centre for Economic and Business Research, and most City sources, had expected banks to pay out around £7 billion in bonuses. Despite this, the British Bankers Association, led by former Tory MP and Treasury Minister Angela Knight, is attempting to agree a reduction in bonuses to £4 billion.
There are, however, no guarantees that the talks will lead to any concrete reduction, with one banker participating in the talks admitting it was “early days” and “not clear” that a workable agreement could be reached.
Thoughts that a reduction in bonus payments could lead to banks increasing lending to small businesses and start-up companies which have been starved of credit also appear premature. A City insider admitted that, at a time when business and mortgage lending has dried up, “£4 billion is still a big number and we’ll still face attacks”, indicating that the talks were an exercise in media management to avoid more “banker bashing” in the media.
