- The Washington Times - Thursday, December 10, 2009

LONDON | That grinding sound in London’s pricier precincts? Bankers gnashing their teeth.

The British government hit them where it hurts Wednesday by announcing a steep tax on bonus pay, just in time to douse the holiday mood in the City, the financial district in the shadow of St. Paul’s Cathedral.

Treasury chief Alistair Darling pulled populist strings in his prebudget report to Parliament, urging bank directors to rebuild their financial strength and resume lending rather than spend money on bonus payments - which will now be subject to a one-time 50 percent tax.

“If they insist on paying substantial rewards, I am determined to claw money back for the taxpayer,” Mr. Darling said.

The tax will be paid by the banks, not the employees, reducing the pot of money available for performance-based bonuses.

Financial specialists said the impact of the bonus tax on government revenue will be slight, and bankers warned that London would become less attractive to the financial services sector, a key driver of London’s glittering prosperity and Britain’s economic growth during the boom years. The country’s banking association said business might go elsewhere under such conditions.

But the move still seemed shrewd to political analysts and pollsters, and it pleased some Britons who said they were happy to see bankers punished.

“This will be extremely popular with the British public,” said Robert Worcester, senior adviser to the Ipsos MORI polling firm. “The British public is not just sullen, they are mad, angry, at the banks. They feel the bankers have taken the taxpayers’ money and stuffed it into their own pockets.”

But he said the financial impact would be blunted as Britain wrestles with its worst recession since World War II and a soaring budget deficit: “The tax lawyers will have already figured out how to get around this thing,” he said of the bonus tax.

Bankers find themselves pawns in a political passion play as the fading Labour Party government seeks to revive its fortune ahead of a general election by capitalizing on public anger at people getting six or seven figure bonuses from shaky institutions that received taxpayer bailouts to avoid collapse.

The new tax sets Britain on a different road than the United States, where early attempts to impose a similar tax have fallen by the wayside.

The U.S. House of Representatives voted in March to impose a 90 percent tax on bonuses to executives of companies that received at least $5 billion in federal bailout money, but a similar effort in the Senate to pass a smaller 70 percent tax covering a wider range of companies faltered. There are no current plans to revive the plans to step up taxes on bonuses.

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