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UK tax on £25,000 bank bonuses: Can it work?

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British Treasury boss Alistair Darling announced a one-time, 50 percent tax on hefty bank bonuses on Wednesday, in a reflection of both the increasingly ugly mood over the large annual payouts made to bankers and of the budget hole that the UK is falling into.

Mr. Darling told Parliament that the measure, a tax on bonuses over £25,000 ($40,500), would raise about $890 million and slow the growth of Britain's ballooning budget deficit. The global financial collapse of the past two years has hit the UK hard, and Darling estimated that the British taxpayer remains on the hook for about $16 billion in bank bailouts. The banks, not their employees, would pay the charge. The employees will then be taxed as normal on their bonuses.

But his comments also reveal that the unpopular Labour government of Prime Minister Gordon Brown has a keen eye on the bankers that the general public in Britain, as in the US, blame for the financial collapse and is seeking to modify behavior. The public attitude is that bankers were paid huge bonuses for making what proved to be reckless bets on sub-prime mortgages and other assets, then were bailed out by the general public, and are now back to their old ways. The British government has estimated that senior executives and traders will earn at least $8 billion in salaries and bonuses this year.


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