The Pre-Budget Report’s hidden measures will hurt Britain, not help it, as the Chancellor takes aim at the bonuses of all parts of the financial industry, not just banks
The clever folks at Withers have discovered that hidden in the Pre-Budget Report (see our liveblog here) is quite a nasty surprise: the bonus tax doesn’t just apply to state-supported banks but also to ‘all asset managers, hedge funds, private equity and family offices,’ says Withers’ Sophie Dworetzsky. ‘It’s massively broad and goes contrary to only catching tax-payer supported institutions.’
Spear’s feels that if this becomes law (which the government surely intends, amendments aside), it will be the final act of a government which once loved the City and now spits at it, for nonsensical reasons. Certainly we would argue that bankers who have caused great losses should not receive bonuses at all, even heavily-taxed ones.
But to punish the rest of the City and Mayfair, in every field of finance, is madness, a deliberate provocation or humiliation without thought for the consequences. There are countless financial firms whose employees have been doing exactly as they ought for their clients, planning sensibly, not evading tax, balancing risk and reward. If their bonuses are to be taxed at 50% (and ultimately probably 70% once income tax is paid), it will be a homicidal blow to one of our most important industries.
David Scott, managing partner of Vestra Wealth, says: ‘It’s a bit cheeky. If the argument is that they’re trying to recoup some of the money that we bailed out the various firms with, well, they didn’t have to bail out hedge funds. The hedge funds didn’t cause the crisis. It’s political posturing to pelase those who think financiers are parasites.’
‘If you’re a hedge fund, why wouldn’t you leave?’ says Sophie Dworetzsky. ‘It’ll be effective money-raising since it’s only short term (though they can continue it), but if its scope is not refined it does raise interesting questions in terms of just how many of these mobile companies will go offshore.
‘It prompts us to ask whether there’s just a general desire to clamp down on businesses in the financial services industry as a whole. Maybe there’s a view that a number of firms engaged in activites which involved excessive risk taking.’ But even so, this is not every firm nor every employee even of such firms.
It also applies to most share awards, not just the cash payments which we had heard were the root of the evil.
If we are to believe what we read and what we hear from Withers, this government will finally have shown its true colours: faithful to finance in the good times, faithless as soon as it can be.
Update: The Financial Times this morning (Friday 11 December) contains news that investment and hedge fund managers within larger banks will not be subject to the new 50% bonus tax.