The president of Britain's second largest bank has issued a veiled threat that the country's elite financiers could join a mass exodus from the City of London if the Government pushes ahead with a bonus supertax today.
The Chancellor, Alistair Darling, is widely expected to use his pre-Budget report to introduce a one-off windfall tax on banking bonuses to help assuage public anger over six- and seven-figure pay-outs just months after the Government's multibillion-pound bailout of the banks.
Bob Diamond, the president of Barclays and head of investment bank Barclays Capital, said businesses and individuals could desert the City if new taxes were imposed.
"Both financial capital and human capital are extremely mobile," he said.
His comments came as the City of London Corporation - the Square Mile's local government – said financial services provided 12 per cent of Britain's tax take. It warned that Britain would find it all but impossible to pay back its gargantuan budget deficit without the money. Speaking at a conference in Sussex, Mr Diamond warned the Government could do real damage to Britain's financial sector in an attempt to get cheap headlines.
"In terms of compensation it's great politics and it's great media. We don't feel that [a tax on bankers' bonuses] is supported by the principles that were adopted [by the G20].
"It's very important to recognise the importance that major financial centres are balanced in terms of regulatory efforts around capital, around accounting, and around compensation. I support strongly New York and London as financial centres and we all have an interest in keeping them both strong."
In a best-case scenario, Mr Diamond's own earnings from various bonus packages and other share-based incentives could have approached £40m in 2006, although his basic salary stands at a relatively modest £250,000.
His Barclays Capital is looking at increasing employees' basic pay by up to 150 per cent as a result of the bonus crackdown - a move likely to be followed by rivals. But the bank has never taken funds from the British taxpayer.
Mr Diamond, an American with British citizenship, argued that there must be a level playing field between different financial centres – which the windfall tax put at risk. The tax is expected to be levied over and above the new "temporary" top rate of 50 per cent on earnings of over £150,000.
Banks have argued that they have signed up to the international agreement – brokered at the G20 summit – limiting bankers' pay and requiring much of their bonuses to be deferred, paid in shares and subject to claw back.
They believe this should be enough and that unilateral measures by Britain could fatally harm the City of London.
Stuart Fraser, chairman of the policy and resources committee at the City of London Corporation, said of the financial sector's contribution to the UK economy: "Ahead of the pre-Budget report, this report highlights the crucial role that the financial services industry continues to play in generating income for the Government despite the ongoing effects of the financial crisis.
"The industry contributes a significant amount to the exchequer, and the imminent 50 per cent tax rate and other proposed changes may in the very short term boost this further. However, there is always a tipping point where changes in the business environment - both in terms of regulation or taxation – begin to affect a country's competitiveness and damage the ability to attract top talent, which may choose to move to rival financial centres instead."
David Buik, chief strategist at money broker BGC Partners, said: "I was beginning to think I was a lone voice in defending the City. Thank goodness there is a man of Mr Diamond's stature who understands the damage that could be caused if this tax is introduced."
However, the Tory leader David Cameron appeared to give some backing to the tax when asked for his views at the same conference attended by Mr Diamond. He said: "In exceptional times there have been exceptional taxes." He went on to mention Lord Howe's windfall tax on the banks in 1981 and said: "It is not necessarily true that all windfall taxes will lead to damage."