After having seen that cajoling and threatening banks against doling out masive bonuses did not work in the US, France, Germany, Switzerland, Spain, Australia and elsewhere, the UK government seems to have finally bared its fangs; Chacellor Alistair Darling has come hard on banker's bonuses by levying a one-time 50-per cent super tax.
With continuing unemployment and recession, the new tax may just mollify the widespread public anger, especially since the next elections are barely six months away.
Despite the UK government having pouring more than £1 trillion into some of its prominent banks to prop them up from total collapse, banks have continued to pay windfall bonuses to their employees, at a time when employees in other sectors were losing jobs due to the recession, for which many economist had blamed the banks for trigerring off the country's woes in the first place.
In his annual pre-budget report presented in parliament yesterday, outlining government spending and revenue plans, Darling said that he planned to levy 50 per cent "supertax" on bank bonusses over £25,000 paid till April 2010 over and above the 40 per cent income tax on salaries.
This punitive one-off tax will last four months until the end of the current tax year and be applicable to all banks and insurers, overseas banks having employees in the UK, building societies and possibly other financial firms such as hedge funds, rather than to individual employees.
Banks that have already contractually agreed to pay bonusses to employees at the time of hiring will be exempt from the tax.
Over 20,000 employees who come into the bonus bracket in over 100 banks, building societies and hedge funds will be affected by the new tax.
The UK government expects to reap £550 million from the new tax. Some analysts say that these bonusses could fetch the exchequer up to £3 billion if banks persist in paying exorbitant bonuses.
This tax comes at a time amidst reports of banks planning to pay £5 to £6 billion in bonuses this year - 50 per cent more than paid in 2008.
US-based Goldman Sachs, and some UK banks like Barclays and Royal Bank of Scotland will be most affected by the new tax since they have the largest bonus pools.
Bankers and critics have already flayed the government for imposing this new tax saying that London will become an unattractive business centre and could lead to a flight of jobs to rival European financial centres like Frankfurt, Paris and Zurich.
The issue of bank bonuses ignited widespread public resentment against banks, politicians and labour unions, as the UK government had doled out more than £1 trillion to banks like Royal Bank of Scotland, whose board later threatened to resign protesting the government cap on bonuses. (Also see: Taxing bankers profligacy)
The Institute of International Finance, the leading industry lobby, said that the financial institutions compensation reform required co-ordinated global regulation.
Late last night French President, Nicolas Sarkozy, a campaigner against bank bonuses, welcomed the UK bonus tax, while Tony Woodley, general secretary of the Unite union, asked Darling to resist scaremongering from the City over brain drain.
(See: Bank bonuses come under scrutiny in the US)
(See: Canada to suspend senior bureaucrats' bonuses from next year)
(See: France looking to ban bonuses at bailout banks)
(See: Australia to curb excessive golden handshake to top bosses)
(See: US President criticises ''shameful'' bonus payouts)
(See: Bonus: The new bad word on Wall Street)