The Great Debate UK
–Laurence Copeland is a professor of finance at Cardiff University Business School . The opinions expressed are his own–
Bank bonuses are in the news again, and once more we see the spectacle of the Prime Minister indirectly pleading with the bankers not to be too greedy. Note the contradiction in the government’s position: even though we own two of the largest and most culpable banks, we dare not impose explicit limits on their pay lest they decamp to places where the political climate is more hospitable and the regulators more tolerant. But although enforced limits are out of the question, it’s quite OK to pressure them by every other means – which, of course, raises the question: why should bankers be more willing to stay in Britain when their pay packet is limited by “voluntary” restraint rather than government intervention?
Of course, as I have argued here before, the likelihood of them moving any substantial part of their business overseas is grossly exaggerated and in any case is a far less worrying prospect than is often suggested. We should not be intimidated by dark hints about investment banking operations moving lock, stock and barrel to Frankfurt, Paris, Singapore or Shanghai. First, the world’s major investment banks typically employ hundreds, sometimes thousands of people in every major financial centre, so at worst we are talking about a marginal reallocation of staff from London towards the other four or five cities which are serious competitors. Is that such an awful prospect?
Recall that no less a figure than Adair Turner called for a reduction in Britain’s financial sector, on the grounds that it is far too large relative to our economy. Moreover, every time you hear mention of the contribution of investment banks to the UK economy – the taxes they pay and the number of people they employ – bear in mind that in the last two years they have cost us far, far more than they will ever provide in tax revenue, and that will still be true even if we are able to avoid another systemic banking crisis for the rest of the century.
from The Great Debate:
(James Saft is a Reuters columnist. The opinions expressed are his own)
A cynical election maneuver it may well be, but Britain's plan to impose a punitive tax on bonus payments is also reasonably well crafted and in broad terms justified.
Facing a monumental budget deficit and an election in months, British Chancellor Alistair Darling announced a plan to slap a 50 percent payroll tax, payable by banks, on their bonus payments in excess of 25,000 pounds to a given employee.