David Prosser: Windfall tax won't work

Outlook: You might even see the bonus pot increased in order to reduce the tax bill
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The Independent Online

Lord Myners knows "the nation is angry" about bankers' bonuses, and he wants people to know that he is "angry" too. What the Treasury's City minister might do about the issue remains rather vague, but you'll note the rising frequency with which the idea that there might be a windfall tax on banking profits is being reported and that the government sources talking up the idea are unnamed. It may not be Lord Myners himself doing the briefings, but the Government certainly wants people to be in no doubt that it knows something must be done.

A windfall tax, however, will almost certainly not be it. As a titbit to be anonymously thrown the way of public outrage, this idea has a huge amount going for it. The levy seems to target fat-cat bankers head on and feels credible, given the windfall tax on the energy sector that Labour levied a decade or so ago.

Just one hitch. Even if the Treasury were to come up with a way to target only banks earning excessive profits with a tax – and it's a big if – a windfall tax would do absolutely nothing to prevent big bonus payments. Banks' profits are calculated after they've paid out bonuses, so you might even see the bonus pot increased in order to reduce the tax bill.