Forget bankers' bonuses, tax bank profits at 100%

Dec 07, 2009, 12:18

Merryn Somerset Webb

Posted byMerryn Somerset Webb

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I have been sent an amusing little book called 101 Uses for A Useless Banker, full of the kind of cartoons that might make us all feel better about the way Britain's big banks appear to have semi-destroyed our economy.

It is a perfect stocking filler. But the truth is that these days the only ones really laughing are the bankers themselves.

Over the last year, while the rest of us have been fretting about our jobs and the gradual erosion of our savings, they've been making bumper profits. Now they are planning to pay themselves bumper bonuses.

This is clearly wrong. Why? Because they are making their money from our money: it is not supernatural skill but near zero interest rates, quantitative easing and the implicit 'too big to fail' guarantee that has made 2008 super-profit time in the City.

The question now is what we do about it. Gordon Brown's current suggestion is a windfall tax on bonus pools. This is stupid on so many levels it is hard to know where to begin. Let's try.

First, it is a ludicrous precedent to set – taxing individuals simply because they happen to work in a particular profession.

Second, it will be extremely hard to implement. Bankers may on occasion be useless, but they aren't idiots. Go for a bonus tax and they'll all be backdating 400% salary rises and so on. Put an overworked civil servant up against a Goldman Sachs corporate financier and who do you think is going to win? Quite.

But the most irritating thing about the bonus tax idea is its lack of ambition. On Radio 4 this morning, it was suggested that the tax would raise a few hundred million. Some bankers have yachts worth more than that. You can imagine a generous partner at Goldman's taking care of the lot just because he can – "I'll get this one lads, you can get the next."
 
So what's the answer? A proper windfall tax on profits, the windfall profits that bonuses are paid out of. Make it 100% and there will be no super-normal profits to pay super-normal bonuses out of. Job done.

I am not generally a believer in windfall taxes but this is not a normal situation – this year's profits have been, to a large degree, funded by the tax payer. So why should we have to sit back and watch them fund the Notting Hill and Monaco property markets?

The bankers won't like it of course. But you know what? Any that really don't like it are surely more than welcome to make good their threats of last year and head for Dubai….

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  • 1. Steve

    (07 December 2009, 01:52PM)  Complain about this comment

    A very appealing idea Merryn, it wouldn't work though would it? Every business needs some level of profit in order to operate (unless you intend to fully nationalise). In any case they would still continue to pay bonuses out of income.

  • 2. Michael Lewis

    (07 December 2009, 06:15PM)  Complain about this comment

    Not workable. Should Standard Chartered for example have to pay the same as RBS? What about Goldman, did they force the UK government to print money? It highlights why we should have let some banks fail, but the whole idea is nuts. Even more nuts of course if the government forcing banks to buy more gilts. Who the hell would want UK government gilts , after they've saddled us with RBS liabilities.

  • 3. Jimbo

    (07 December 2009, 07:52PM)  Complain about this comment

    Do bankers care if their banks go bust or is it just the rest of us? Banks and bankers are two separate entities with differing short- and long- term goals. Whilst the bankers have control of the banks and the rest of the economy is reliant on those banks, they have the country by the proverbials. So it's the system which needs to be changed, not the tax code.

  • 4. Stephen B

    (07 December 2009, 09:05PM)  Complain about this comment

    People forget that the banks in the US were bailed out in the 90s (as Nicholas Nassem Taleb makes clear in The Black Swan, they effectively lost more money in a short period of time than they had culmulatively made throughout their existence).
    They will once again receive tax payer support when they hit troubled waters, with the result that national public debt will go to truly-terrifying levels (it is already terrifying).
    American and the UK have lost their ability to govern themselves in a moderate and productive way. Unless we choose the scale down our lives, with a return to Main Street rather than Wall Street culture, the only alternative for those of us who want to get on in life is to move to another country which is less tolerant of such irresponsibility.

  • 5. Chang

    (09 December 2009, 06:12PM)  Complain about this comment

    Merryn for Chancellor!
    Any fool can make bonanza profits if handed out billions of pounds at 0.5%. To make it even easier the government then borrow it back off them for 4%, a 700% lending margin, risk free! Bankers are far from geniuses, it's just that imbecilic politicians and civil servants seem to try their best to make them look so super-talented. They are all welcome to fly away to far-off tax havens, but there is zero chance that any host nation will be as willing to hand them such riches on a plate. Tax the lot of them, seize their assets , then ship 'em off to Dubai. This might seem extreme, but these financial terrorists are holding the country to ransom and need to be dealt with once and for all. If they were acting like this in the Middle East (where debtors go to prison), they'd have their hands cut off and in Singapore they'd be flogged to within an inch of their lives.

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