Bankers angry over windfall tax on bonuses

Banking chiefs today reacted angrily to suggestions that a windfall tax on bonuses could be included in the Chancellor's Pre-Budget Repor

The British Bankers' Association (BBA) has warned that financial firms or key staff could abandon the City of London if Alistair Darling decides to go ahead with the one-off measure.

Responding to reports that he was keen on the idea as he looks to cool public anger over bonuses, the BBA said such taxes were "populist, political and penal".

A levy on bonus payments is one of several measures aimed at the wealthiest individuals thought to be on the cards for Wednesday's autumn Budget statement.

The BBA said that the Government should "bear in mind the strategic importance of the City to the UK".

It said prior to the turmoil of recent years, the financial sector brought in around £7 billion a year in corporation tax and raised fears that banks and their staff could relocate away from the capital if penalties were felt to be too heavy.

BBA chief executive Angela Knight told the BBC that a super-tax on bonuses would send the wrong message to the world about the UK's position as a financial centre.

"We have already seen quite a few companies shift out of the UK," she said.

"It might be popular to put very high taxes on a few (bankers), but we need to know how we would look internationally."

Chris Roebuck, honorary visiting professor at Cass Business School, said that it would be very tempting for bankers to relocate to other countries if tax hikes were too stinging.

"What the Chancellor needs to do is to apply enough pressure to assuage the public wrath but not so much as to make the bankers move," he said.

"So a one-off tax might be the answer, but to make it annual might court disaster."

Professor Roebuck added that there are "major problems" in applying a tax just to bankers.

"The public might argue that it should actually apply to anyone earning over £1 million per year; be that footballers, top executives, or others," he said.

"The Chancellor needs to tread carefully."

It is thought that the bonus super-tax would not just apply to British banks, but would also include the UK arms of foreign firms like JP Morgan and Deutsche Bank.

Investment banking has had a particularly profitable year amid rising stock markets and huge economic stimulus measures by governments across the world.

US firm Goldman Sachs is thought to be on course to set aside 19 billion US dollars (£11.4 billion) for pay and bonuses after a bumper year.

Meanwhile, the Government has warned it might veto the size of the Royal Bank of Scotland bonus pool - thought to have increased by 50% on last year to £1.5 billion - prompting reports that the bank's board could resign.

Wealthy people look set to bear a heavy burden as a result of the Budget plans.

The Government faces an estimated £175 billion budget deficit, while the Chancellor will also be keeping one eye on next year's election and the demands of core Labour supporters.

Top earners have already been hit hard by the Chancellor in this year's Budget, when he announced plans to introduce a new 50% income tax band for those earning more than £150,000 from April next year, as well as scrapping personal allowances for people earning above £100,000.

The Government has also sought international support for a "Tobin tax" on financial transactions.