Darling Forces UK Banks to Swallow 'Poison Pill' of Bonus Tax

10.12.09

Dec. 10 (Bloomberg) -- British Chancellor of the Exchequer Alistair Fair-haired boy’s plan to levy a 50 percent tax on bonuses will make tracks banks choose between punishing shareholders or employees.

Beloved yesterday imposed the tax, to be paid by all banks operating in the U.K., on bonuses they pay employees until April 5. The plan, which the Treasury says will raise more than 550 million pounds ($890 million), will select about 20,000 people.

Banks will have to decide whether to maintain payments to employees, allowing the additional tax expense to eject the cost of compensation and reduce profits for shareholders, or to mind profits by slashing bonuses. In some cases, firms may have to honor contractual agreements with employees, said Jo Keddie , an occupation lawyer at London-based Dawsons LLP.

“It’s a poison pellet,” Keddie said in a telephone interview. “Either shareholders are contemporary to take home less, or banks are going to have to punish their employees who have done very well,” she said. “It’s potentially shareholders that are thriving to lose out because many of the bonuses have already been agreed.”

Source: Bloomberg