"Banker's Bonuses" - Eve McGlynn

The subject of Banker’s Bonuses has been highly debated within the press recently, as Britain’s economy continues not to improve, as promised by politicians, but to worsen, as time passes. Although the infamous ‘green shoots’ have begun to appear in the economy, with businesses announcing growth in profits, and rises in house prices have appeared, although by a small amount , the economy is nowhere near a full recovery.

Although the economy is in ruins, the employees of huge Wall Street bank Golden Sachs - who many hold to blame - continue to receive bonuses of around eight times the British annual salary, on average £323, 000 being paid to each individual, Golden Sachs forking out approximately £10 billion in total. The bank also seems to show disregard for the recession, as this becomes their largest payout ever in bonuses. The business itself has announced profits of £1.96 billion for this quarter, and instead of retaining profits, which could help to safeguard the business in the volatile economy, they continue to pay out five times their quarterly profit, at £10 billion, compared to a profit of £1.96 billion.

Some claim that although the Banker’s Bonuses are widely frowned upon, they are a better alternative to giving the Government more money, as to waste it on ‘pointless schemes’. The bankers will use the money to support the economy by spending, as politicians so frequently urge us to do. The banks also try to keep their employees happy, because without employees the huge banks could not function. Some bankers would consider finding another job, at another bank that would be willing to give them bonuses. This may result in losing more jobs, as vacancies, even at such high levels, are few and far between. Banks would rarely be willing to take back such volatile employees, and there would be many other possible candidates for the post, and so the banker in question would be without an occupation.

Alistair Darling plans to propose a 50% tax on Bankers Bonuses, which would be paid straight to HM Revenue & Customs, although it would not be the employees themselves that would be paying taxes, but the banks. For example, for a bank to pay out £1 million in bonuses, it would cost the bank £2.25 million, which would go straight into the government, to use on for example regeneration projects, or the NHS. This would benefit communities, all the while being fair to the employee, as their bonus would not be deducted, simply deferring the banks from handing out large bonuses. Alistair Darling insists that he is giving banks a choice, “They can use their profits to build up their capital base.” states Darling “But if they insist on paying substantial rewards, then I am determined to claw money back for the taxpayer.” Darling expected a smaller bonus payout due to the £80 billion losses suffered by British banks, although, they seem intent on handing out huge bonuses. Darling also believes that banks will find other ways to pay out bonuses, and is prepared to put the legislation through parliament, to stop them undermining his new plans.

Banks plan to hit back toward this legislation, though. MP John Whiting states that “It does sound like more of a controlling measure than a tax raising one: we need to see the detail but the obvious thought people will have is that it will be possible to sidestep the measure by waiting a year.” His statement only rings too true and the banks will not just defer the bonuses by a year, but take other measures too. Some bankers would be prepared to move to different places, where tax can be as low as 13%. This would only be one method of getting around Darling’s new plans. Some banks would take the simple measure of increasing salaries, instead of handing out bonuses, which would escape the tax, through this very simple loophole. Another, more elaborate loophole that has been found is to create artificially low value shares, that’s value would rise rapidly. If the defer bonuses by a year (or until the windfall tax ends), which would leave bankers without their £300, 000 pay out, would be remedied by a bonus twice the size the next year, which in the long run could support the economy, as the bankers would inject a large sum of money into the economy, an approximate (and sizeable) £20 billion.

In conclusion, the banking world is one that although many people say that they could do a much better job than the ‘fat-cat’ bankers, they also do not actually know the full story. People may have miracle cures to the recession, and they can be hostile towards bankers, politicians and the likes all they want, but, behind closed doors, the economy is a world which none of us can fully understand. The public may have opinion on how the country is run, but let me assure you, put any one in the seat of a politician, and they would, most likely, perform in a similar manner, if they were able to cope under the pressure. This does not mean to say that all politicians and bankers are saints, as they have not performed their duties well, and should continue to strive for the better of our country.