Page last updated at 17:00 GMT, Friday, 18 December 2009

London 'damaged' by bonus tax, Barclays chief says

Barclays chief attacks bonus tax

London's role as a leading financial hub may be "damaged" by the new bonus tax, Barclays chief John Varley has told the BBC.

Mr Varley is the first senior British banker to attack the one-off 50% tax on large bonuses for bankers recently announced by the government.

"I think that London could well be damaged by this," he said.

The Barclays chief executive also criticised Labour for not ensuring a "predictable tax environment".

The bonus levy applies to bonuses of more than £25,000, and lasts until April next year. France has announced similar plans.

The tax is payable by banks, with bankers still having to pay income tax on any bonus they receive as usual.

Mr Darling predicted in his pre-Budget report that the tax would raise £550m, though banks have claimed it would raise far more.

'Laments' bonus tax

"Banks are competing globally - this bank, Barclays, competes with banks all around the world and we have to be able to compete on a level playing field," Mr Varley told the BBC.

"The United Kingdom and France have gone in that direction (the bonus tax) and I lament that," he added.

I understand the anxiety in the public and in stakeholders in this country about pay in the banking industry
John Varley

The Treasury, in a response to Mr Varley, said it stands by its decision to have a tax.

"The government does not believe the long-term competitiveness of the UK financial services sector will be harmed by this one-off tax," a Treasury spokesman said.

"Without the significant support that the taxpayer has provided over the last year, some of the banks would have failed, damaging the economy further.

"The bonus tax will ensure banks think twice before paying large bonuses on the back of taxpayer support.

Mr Varley also criticised the government for the changes it had made to the tax system.

In addition to the bonus tax, Mr Darling has implemented a new higher tax rate of 50% that will be applied to incomes over £150,000 a year from April 2010, and high-earners will be taxed on the value of their employers' pension contributions.

"It is very important that for this economy we have a predictable tax environment, not just for this tax but for all taxes," Mr Varley said.

"And what business needs and households need is a stable and predictable tax environment and I think that this (the bonus tax) is a demonstration of a lack of stability in the tax environment."

Shadow chancellor George Osborne has said he does not oppose the bonus tax, but Conservative London Mayor Boris Johnson has warned the tax would "super-penalise" the city.

Competitiveness concerns

Unlike rivals Royal Bank of Scotland and Lloyds Banking Group, Barclays avoided seeking a bail-out from the UK government in the midst of the financial crisis last year.

It instead raised money from the Middle East, though it still benefited from emergency lending measures from the Bank of England to restore confidence to the credit markets.

Hugh Pym and John Varley
Mr Varley is the most high-profile banker to hit out at the bonus tax

Mr Varley acknowledged the banking industry's debt to the taxpayer.

"I know that as a system we had state support when we were on the brink of collapse and we need to acknowledge that in our behaviour," he said.

"I understand the anxiety in the public and in stakeholders in this country about pay in the banking industry.

"But I also have a responsibility to our shareholders, and in the modern banking environment, talent is mobile. So unless I get the best people I will not be doing my duty to my shareholders.

"We need a level playing field to make sure that we can compete with the best companies in the world," he added.

He said it was important that the financial services sector stayed competitive because it employs 1.3 million people, generates 15% of corporation tax contributed to the Treasury's coffers, and accounts for 10% of the total output of the UK economy.

Barclays said recently it made a pre-tax profit of £1.56bn in the three months to 30 September.

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