Goldman Sachs has scrapped a plan to save its UK employees millions of pounds in tax by delaying bonus payments, following criticism from both the Treasury and the Governor of the Bank of England.
The Wall Street financial institution took the decision at a meeting of its compensation committee today afternoon, according to sources at the bank. Goldman had been mulling a plan to shift back a series of bonus payments to its UK staff until after 6 April, when the top rate of income tax falls from 50p to 45p. This would have cut the size of its employees' tax bill to the Exchequer.
Appearing before the Treasury Select Committee today, Sir Mervyn King said it was "a bit depressing that people who earn so much seen to think that it's even more exciting to adjust the timing of it to get the benefit of a lower tax rate".
The Governor added that banks which engaged in such tax avoidance at a time when ordinary people were suffering from the fallout from the financial crisis were at serious risk of damaging their reputations.
"I think it would be rather lacking in care and attention to how other people might react," he told MPs. It also emerged today that the Government also put pressure on Goldman on the issue of possible bonuses deferrals after ministers were criticised for refusing to intervene today.
Officials set up a phone call between the Economic Secretary to the Treasury, Sajid Javid, and the bank on Monday to discuss the matter. In the end, the two parties spoke after the deferral plan had already been scrapped but, according to Treasury sources, Goldman knew what the message would be.
Labour welcomed the decision but pointed out that the wealthiest earners in Britain would still benefit from the Chancellor's decision to cut the top rate of income tax from 6 April.
"Goldman Sachs has made the right decision but the fact remains that from April, thousands of bankers and millionaires will get a huge tax cut from David Cameron and George Osborne," the shadow Treasury Minister Chris Leslie said.
Goldman will today unveil its results for the fourth quarter of 2012, with analysts expecting the investment bank to report a rise in group revenues of 30 per cent year on year. It is expected to pay its staff a total of between $13.3bn (£8.2bn) and $13.8bn in compensation for the full year.
This compares with total compensation of $12.2bn in 2011, and represents £250,000 for each member of staff, up from £230,000 the year before. However, the deferred bonuses under discussion related to the years 2009 to 2011.
The bank has a history of aggressive income-tax avoidance. It brought forward payments of bonuses to US staff last month to avoid income tax hikes imposed by Congress on 1 January as part of the deal over the fiscal cliff.
Goldman has 5,000 employees in the City of London.