Why does the government need to introduce a special 50% tax bankers bonuses or any special rules to ban them?

Surely for the likes of RBS all they need to do is turn up at the shareholder's meetings and say 'we are 70% of the votes and we say no.' Job done.
Even if the shareholders have no direct say over bonuses they can re-elect (or not) the directors who do decide on/authorise them.

Or have the government given the banks loads of our money in return for shares with no voting rights at all? Can't imagine Gordon doing anything so silly, that would be like putting a tax on pension dividends or selling gold at ridiuclous prices just before it shot up in value…

You know the answer to this already dont you.. TROLL. 😉

I genuinely don't.

Please don't tell me my last paragraph is actually true?! (yes, I know the bit about pensions and gold is) FFS, what were they thinking.

I was expecting an answer about an obscure EU law which prevents governments from directly interfering in the day-to-day afairs of part-private/part-nationalised companies or something similar.

The tax subsidy on private pensions was most unfair. All taxpayers subsidising the pensions of a few. For every £ spent subsidising public sector pensions £2.50 was spent subsidising private ones thru tax releif

I would hazard a guess that the last paragraph is indeed true.

In that case I shall ask a different question.

Why did the government do this? The least we should get for our money is some say in how they are run.

The govt has ordinary shares in RBS, and most of the holding in LBG is in ordinary shares as well. Usually ordinary shares carry voting rights and preference shares don't (I think a reasonable part of the govt's stake in LBG is in prefs so they technically don't control it even if they have put up the greater amount of share cap).

The shareholder votes don't count for anything when you're making day to day decisions, like paying bonuses, as they effectively vote for directors to take decisions on the shareholders' behalf. It's kind of like a general election where you vote for the people you want to run the company/ country then to a large extent have to leave them to it until the next election.

The semi-nationalised banks are in a sticky situation as if they don't pay bonuses, their talent will leave for places where they can be paid more (human nature and bankers are human too you know) but if they do they risk govt interference which is ultimately damaging to the bank and so our stakeholding in it.

No UK government can afford to piss the City off as like it or not it's a massive part of our economy and overall is wealth-generating, and no government wants to piss off the electorate when they have about 6 months left.

As I see it, short of structurally changing the whole banking system, which isn't likely to happen despite the political posturing and sabre-rattling, this payroll tax is about the best the govt could do to balance the needs of protecting the taxpayers' stakes in the bank and recouping their investment while getting some political capital out of the mess.

The semi-nationalised banks are in a sticky situation as if they don't pay bonuses, their talent will leave

Talent?

That argument is like a relegated football team demanding a wage increase. Absolute garbage.

Besides, if the city wasn't such a big part of our economy, we wouldn't be in such a mess. Perhaps we should make stuff instead.

TJ – if you look into it, the average private sector worker pays almost as much into the public sector pension pot than they do into their own pension pot.

The "tax subsidy" wasn't a subsidy at all, it was a structural feature of the corporate tax system and removing it introduces an imbalance.

Before Gordon took the reclaim of the FII tax credit away companies paid tax at 34% (I think) and paid dividends out of post-tax profit. The tax credit was intended to partially offset the fact the dividend was post-tax.

Pensions are meant to be gross roll-up so contributions are out of pre-tax salary and income and gains accrue gross of tax. You then pay tax on the income from your pension when you get it.

Taking the dividend tax credit away means that you don't get any offset of tax paid by the company (at, say, 30%) in your pension fund – so for every £70 a company distributes to its shareholder it has to earn £100 of profit; as things stand your pension gets £70 of income to invest, before Gordon robbed us of the tax credit it would get 10/9 * £70 which is closer to £80 (I don't have a calculator to work it out) to go into the pension pot.

Ultimately it is timing and like so much of this govt policies short-termism; instead of taking 22% of the return on growth of a tax credit once you retire, they take 10% of it now to piss up the wall on **** knows what.

The semi-nationalised banks are in a sticky situation as if they don't pay bonuses, their talent will leave

Talent?

That argument is like a relegated football team demanding a wage increase. Absolute garbage.

Besides, if the city wasn't such a big part of our economy, we wouldn't be in such a mess. Perhaps we should make stuff instead.

It's like saying because some teams get relegated no footballers should be paid their goal-scoring bonus. Banks rely on people and good people are rare and mobile. They can make a few phone calls and be in a new job in a week.

I'd disagree with your argument about the city as well – we wouldn't have had the boom without the contribution from the City. Clearly the disappearance of Boom = Bust and that's not a good thing by any stretch of the imagination.

Developed countries that make stuff aren't exactly in a great place now either. Germany has no-one to buy it's high end products and Japan has been virtually stagnant for 20 years.

The shareholder votes don't count for anything when you're making day to day decisions, like paying bonuses, as they effectively vote for directors to take decisions on the shareholders' behalf. It's kind of like a general election where you vote for the people you want to run the company/ country then to a large extent have to leave them to it until the next election.

Perfectly true. So why don't we (taxpayers), the majority owners, say through own elected representatives that any director who does authorise such payments will not be re-elected? With a 70% stake we have the power of veto over the election of any director.

[Edit] Google has just told me that 2/3 of the stake is ordinary shares and 1/3 preference shares so we have 2/3×70%=less than half of the voting rights. B*gger, it appears the gov't has bought the 'wrong' shares and Goan was right.

if they don't pay bonuses, their talent will leave for places where they can be paid more

Would the banks be any worse off without these people? Nothing against paying a bonus to those who have done a good job, but if the bad ones leave then so much the better surely?

Also, will this tax effect for example, Barclays or HSBC? As far as I'm aware they have received no gov't help but their employees will be hit by the same tax.

Developed countries that make stuff aren't exactly in a great place now either. Germany has no-one to buy it's high end products and Japan has been virtually stagnant for 20 years.

It's called a mixed economy. Germany's economy was based too much on Manufacturing(60% was exported) while ours is too services based. Diversification needs to happen.

Japans economy has been controlled too tightly by its "civil service" since the end of WW2, something that the new Government is now in the process of changing.

Germany and Japan have realised the need to diversify. Have we?

Germany and Japan have realised the need to diversify. Have we?

Probably not. As soon as there is a sniff of recovery, we'll be back to the government sucking away at financial services cock and all the tighter regulation and prudential governance stuff will be quietly ditched in favoor of feel-good and a big fat tax take.

And we'll all be roaringly happy to do whatever the new version of remorgaging the shit out of our houses until the next bust comes, which will probably be even bigger and angrier.

Personally, I'm considering learning Chinese or Arabic so I am ready for the next bale-out.

Fat Elvis makes some good points above, but the real killer about getting rid of the pension fund credit was that it made debt a much more tax efficient way of financing a company for the pension fund investors. This led to the venture capital boom and massive leveraging of the corporate sector.

Not sure the two are directly related, but there is a big imbalance as around debt interest is tax deductible, but equity dividends aren't. Assuming your company is profitable (which is sort-of a prerequisite for investment), debt finance is cheaper for the company so you as an investor get a higher return as long as things are working out well.

To massively simplify things, as a debt investor your payback is from a pot of £100 as the company gets a tax deduction for anything it pays you instead of a pot of £72 (i.e. £100 less 28% tax) if you're holding equity.

Problem is, when the poo hits the propeller a company that isn't making money will swiftly find out that debt finance is much more short term and fickle and prone to dissappear when you need it most, and you have to pay interest to your bondholders whatever happens, whereas shareholders only get a dividend when there is the money to pay it and you can have their money until the company decides it doesn't want it.

I'm sure there will be much more fallout from debt-financed stuff in the next few years – share cap is effectively permanent but even 5 years is a long time for debt financing and companies are going to find that the rollover for financing isn't so easy as they thought it would be when they set stuff up.

It's really down to predicting how doomed we are and when it's going to go pop.

Having worked in the area I am pretty comfortable they are. Brown's abolition of ACT and the tax credit basically moved us to a classical tax system for pension funds like the US, where leverage rate have historically been much higher. Michael Milken created the junk bond market from the realisation that with a junk bond he could create a quasi equity instrument which was tax deductible, thus creating the LBO. Before the abolition of ACT the residual tax cost on a fully distributed basis as in your example was 8% (Rates have moved sinced then). A premium people seemingly were willing pay for the stability of equity.

Is that what they call 'financial innovation'?

I guess so – most financial innovation is driven by government restrictions or taxation. London's position in the international financial world was much enhanced by the creation of the eurobond market which was created to get round US currency controls.

They only have a controlling interest in one bank, and I think a largest shareholder minority interest in another. So, picture the scene:

"We're putting a punitive restriction on your wages, and nobody elses"
"Fine, I quit"

So, you disadvantage the one bank we want to succeed the most, as we own it, while not disadvantaging anyone else or influencing the wider culture or market at all. Epic fail.

We're putting a punitive restriction on your wages, and nobody elses"
"Fine, I quit"

"We're putting a punitive restriction on your wages, and nobody elses, because you make a complete hash of your job and we had to rescue you to stop you bringing everyone else down with you"
"Fine, I quit"
"Bye. We can replace you with someone who knows what they are doing."

"It's like saying because some teams get relegated no footballers should be paid their goal-scoring bonus."

Its more like saying that the players did so sh!t that they were relegated to a division with no other teams in and were still paid a bonus to score into an empty goal. Anyone with half a brain should have made money this year in equities.

andrewh, it's not the same people at the top 🙄 RBS have IIRC only 1 executive director left from before the bailout. And those lower down mostly haven't done anything wrong. The idea thta these bonuses are all going to people who've failed in some way is frankly idiotic.

The Government is taxing Bankers bonuses to avert the gaze of the Public from the Governments own shortcomings and economic mis-management aswell as the enormous abuse by politicians of the public purse for their so called "expenses". In an economic crisis you need to blame someone!

The Government and Bank of England know well that the UK Economy has survived the last two decades by growing by using the wealth effect of inflating our property prices to ridiculous levels. I.e this Government and our regulators have presided over a vast asset bubble. they daren't burst it now as they know it would be political suicide.

However all bubbles collapse eventually. This one collapsed when US borrowers started defaualting on subprime loans that should not have been granted in the begining. This ones collapse will be accelerated by this "banker tax" as it will hit the UK South East quite hard as it will affect quite a large number of housholds. People who earn 25K+ bonuses tend to be big spenders so that tax should have quite a multiplier effect.

I was amused at Mr Darling talking about Japans "lost decade". I really dont think he knows much about it but is happy to quote from it. Their asset price collapse had nothing to do with massive banker bonuses, but still a lot to do with excessive lending and speculation.

The UK lending bubble wasn't caused by bankers bonuses as Mr Darling would have us believe. Northern Rock and small retail lenders collapsed first. That was not due to excessive bonuses…just excessive lending. This bubble has been due to regulators and the government being lax at their job. The credit rating agencies were churning out AAA ratings for sub prime "collaterased debt", which soon collapsed. They still have not been made to answer for this. Mr Blair was a huge property investor himself and I recal other Government members being quoted in newspapers as being big property owners. I am amazed at some of the huge mortgages they managed to obtain.

TJ you are wrong. Your Public sector pension is unfunded. It will come straight out of future taxpayers pockets when it is due. You are not subsidizing anyone. Private sector pensions are taken out of peoples earnings. That is not your money.

it's not the same people at the top RBS have IIRC only 1 executive director left from before the bailout. And those lower down mostly haven't done anything wrong

Seems a bit harsh to tax them then?
I just get the feeling the gov't like to legislate for every little problem in the hope that it looks like they are doing something. I find it odd that as the owners we can't do anything about it without legislation. Are those banks which are still fully private to be affected by this tax too? As a private organisation I don't give a monkey's what they do with their money but when my taxes are going towards paying for an RBS employee to get a bonus bigger than my salary after my taxes had bailed out his company I get a bit cross.

As Radioman says we are all to blame by borrowing money we couldn't affod to pay back. We then gave money to some financial institutions to prevent them collapsing as their management had failed to prepare for the fact that not all of the loans would be repaid, and then when they do have a bit of money it goes on bonuses rather than giving it back to those who bailed them out or building up capital to survive next time we hit a downturn. What's that all about?

While on the subject of legislation, how can they make it a legal requirement to halve the budget deficit within 4 years? (leave aside the fact that they need to go much further than that but no-one dares to say they will cut any services to pay for it) Why does this need legislation?

I would have thought there is a simple answer. Pay all the bankers a good healthy bonus that is only payable in say 10 years and is dependant on the banks coming good and repaying the governement in a shorter period of time, the banks being rock solid stable in 5 years etc. That way they only get the bonus if they 'perform'. Simple. (or too simple is it?)

ChrisE, you know it makes sense, I know it makes sense, I'm sure everyone on here would agree with you.

Gordon and Alistair's minds don't seem to think in the same way as normal people's…

TJ you are wrong. Your Public sector pension is unfunded. It will come straight out of future taxpayers pockets when it is due. You are not subsidizing anyone. Private sector pensions are taken out of peoples earnings. That is not your money.

Nope – I pay for my pension thru superannuation as do most of us. It may need to be subsidised by taxpayers but it is not unfunded. 9% of my income IIRC

Tax relief on private pensions is a subsidy from the taxpayer – and is far more expensive than the taxpayewr subsuidy to public sector pensions. 2.5 times as much taxpayers money subsidises private pensions thru tax relief that subsidises public sector pensions

http://www.tuc.org.uk/pensions/tuc-16929-f0.cfm

So the taxpayer subsidises the private sector more than the public sector – and still many folk have poor pensions.

TJ – did you actually read that link or see £2.50 and £1 and make it up from there.

Let's do some thinking about the first few paragraphs.

"Taxpayers are paying £2.50 for subsidising the pensions of the richest one per cent of the population for every pound spent on paying pensions to retired public servants such as nurses, teachers and civil servants, according to new research published today (Wednesday) by the TUC."

So your "2.5 times" source doesn't actually say that, does it? And the 2.5:1 ratio is in relation to the richest 1%, not the entire private sector.

"The findings are revealed in a new campaign pamphlet Decent Pensions for all that says the real pension problem in the UK is not the affordable cost of public sector pensions, but the growth in the number of private sector employees with no pension."

I quite agree. That is a serious issue, but not one connected with higher rate taxpayers who DO have pensions. There is no link between the wealthy making provision for retirement and the less well off not doing so. None at all.

"The cost of providing tax relief on pensions in 2007/8 was £37.6 billion according to HMRC figures – ten times the net cost of unfunded public sector pension schemes that are not backed by an investment fund. This is estimated by the Treasury to be £4 billion this year."

Tax relief applies to ALL pension contributions and will presumably be across employer and employee contributions across public and private sectors. Note that the public sector figure is a NET cost – do you think the £37.6bn is a net figure too? I bet it isn't.

"Tax relief is heavily skewed towards the better off. Treasury figures reveal that 60 per cent of tax relief goes to higher rate taxpayers, including 25 per cent – nearly £10 billion a year – going to the top one per cent of earners, on more than £150,000 a year."

This is utterly meaningless. The tax system, both in relative and absolute terms, is heavily skewed towards the better off (as any tax system that reflects ability to pay should be). If you earn £10,000 your effective tax rate is about 10% and you will pay £1k or so of tax; if you earn £250,000 your effective tax rate is going to be about 40% and you will pay £100k of tax. Something has to be taxed in the first place for relief to be available, and higher rate taxpayers will have more relief available to them for pension savings. It's not rocket science.

I could go on and on and on, but will leave that to you.

Fat elvis – is just an alternative way of looking at things as a counterbalance to the myths peddaled on here and int eh right wing press about pensions.

Public sector pension subsidy is less than most folk believe and is dwarved by the tax breaks enjoyed by private sector pensions.

ChrisE wrote,

"I would have thought there is a simple answer. Pay all the bankers a good healthy bonus that is only payable in say 10 years and is dependant on the banks coming good and repaying the governement in a shorter period of time, the banks being rock solid stable in 5 years etc. That way they only get the bonus if they 'perform'. Simple. (or too simple is it?) "

Drastically too simple. you say "the bankers" but, who gets this policy applied and who doesn't? Directors? Investment bankers? Shop floor workers? Most people who work for the bank will have absolutely no ability to influence how fast the banks repay the bailouts or become more stable, so you're going to bonus them based on something they can't influence?

For policy-setters within the banks, this idea's fair enough- in fact, many banks have already applied deferred bonuses- although it does come down to the same problem that the government has no real justification to apply such a restriction to those banks who haven't taken a bailout, whereas applying it to those who have can only disadvantage them and make it more difficult for them to repay their bailout money, which obviously isn't a good idea. Not that we want RBOS operating normally, since normal for them obviously has a few drawbacks 😉 But we do want them to be able to operate on a level playing field.

Either that or fully nationalise them, if we want to have a toy bank that doesn't work like a normal one.

If they can't influence the way the bank will perform long term (eg a cashier or a cleaner) then they shouldn't get a bonus, they get a wage!

C

Perhaps I phrased that poorly… If every single bank teller suddenly stopped selling mortgages, then the bank's going to suffer but they don't have the direct influence that the senior members do, who're literally setting policy and budgets.

To put it differently, bank staff are usually heavily bonused for selling personal loans and credit cards, which arguably is one of the things which got us into this position. But, they're doing their job, it's the people further up who set those targets, set risk measures and decide what funding and securitisation to apply to personal lending.