U.K. bankers give backlash to bonus tax

Bill Radke Dec 10, 2009

U.K. bankers give backlash to bonus tax

Bill Radke Dec 10, 2009


Bill Radke: The push for a tax on bank bonuses may be gathering steam. Yesterday,
the U.K. slapped a 50 percent tax on parts of the bonuses banks pay to employees. In this morning’s Wall Street Journal, the leaders of Britain and France call for a worldwide bonus tax. Some people are less than thrilled. Here to tell us more is economist Andrew Hilton, director of the Center for the Study of Financial Innovation. Welcome.

Andrew Hilton: Nice to be here.

Radke: What is the argument for this one-time bank bonus tax?

Hilton: Well in the U.K., it’s that the labor government faces an election in about four months, and it really wants to portray its opposition party as being in favor of the rich and against the poor, and this is a step in that direction.

Radke: The reasoning being the taxpayers helped out the banks when they were down?

Hilton: The reason is the taxpayers helped out the banks when they were down, but everyone hates the bankers these days. Bankers don’t have any friends across the political spectrum and this is easy point-scoring.

Radke: What’s the reaction to this in London?

Hilton: Well the bankers are predictably outraged. For some bizarre reason, they seem to think that they deserve these bonuses. It’s only a one-year, one-off tax, so one can expect that a conservative government, and it will be a conservative government, will reserve it, but not this year. It will be reversed next year.

Radke: So are bankers’ cries that this threatens London as a financial center overblown?

Hilton: Yes, I think so. Of course, if London does continue to impose this tax, and if no one else does it, then of course the bankers will think about moving. But they’re not going to move if it’s a one-shot deal because they’ve got children in schools, they’ve got apartments here, it’s not that easy to move.

Radke: Finally Andrew, do you think this is a short-term reaction to the recent crisis and bailouts or are we seeing a long-term change in how big financial powers will regulate their banking systems?

Hilton: Well I’d certainly like to think that there was a long-term change on the way. But my fear is, to beat an aphorism to death, that we’re in danger of wasting a good crisis. That instead of looking at the structure of banking, we’re looking to much at the structure of regulation and kind of micro-managing the banks. What we really need to do is to restructure the banks so that they don’t need to be micro-managed.

Radke: Andrew Hilton is director of the Center for the Study of Financial Innovation . Thank you for joining us.

Hilton: My pleasure.

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