Page last updated at 16:57 GMT, Wednesday, 16 December 2009

Banking bonus tax won't raise much, says Darling

Alistair Darling
Alistair Darling said bankers had to show some restraint

Alistair Darling has said a one-off 50% tax on large bonuses for bankers will "not actually raise that much" money.

The measure, announced less week, had been designed more as "a clear signal that we need to change behaviour" within the sector, he told MPs.

The chancellor said bankers had to show they "live on the same planet as the rest of us".

Banks have claimed the 50% tax will raise more than the £550m Mr Darling predicted in his pre-Budget report.

The levy applies to bonuses of more than £25,000, and lasts until April next year.

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

'Help yourselves'

Stephen Hester, chief executive of majority state-owned Royal Bank of Scotland, complained on Tuesday that the row over bonuses had hit his firm's share price.

But the chancellor told the Commons Treasury committee: "I say to the bankers, you've got to help yourselves to get through this process, and that means if you want to get off the front pages for goodness' sake show some of the restraint the public want you to.

We think you should not be paying bonuses at this stage; you should be putting money in the bank
Alistair Darling

"But the reason we've introduced this measure - it's not a great revenue raiser, it doesn't actually bring in that much - what it does do though, I think, is send a clear signal that we need to change behaviour."

He added: "Most people realise that these banks, and banks all over the world, would not be standing today if taxpayers in this country and in other countries too hadn't put their hands in their pockets to stabilise the banking system.

"I think that most people would say that this is a time when the banks should be consolidating, they should be building up their capital strength, they should be ensuring they are in a position to resume lending so that together we can see the economy grow.

"That does mean that some bankers, not all, need to demonstrate that they live on the same planet as the rest of us, they need to be realistic.

"All we're saying to banks, and the measure I announced last week which is one-off is... 'we think you should not be paying bonuses at this stage; you should be putting money in the bank; but if you do then there will be a levy on that payroll by bankers'."

Banks will not be able to avoid the taxes by deferring bonuses until after April 2010, when the temporary measure ends.

The Treasury says that bonuses promised or paid for work done in 2009 are liable to be taxed.

During a lengthy question-and-answer session with the Treasury committee, Mr Darling said house price falls during the recession "probably" would not be as bad as "the predictions we had two years ago".

But he added: "If you look around the country, the picture is not uniform. There are substantial variations. The key thing about house prices and variations is the labour market."

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