Bank of England governor Sir Mervyn King today attacked banks for considering delaying bonus payments to allow their staff to pay less income tax.
“I find it a bit depressing that people who earn so much seem to think it’s even more exciting to adjust the timing of it, to get the benefit of a lower tax rate which they will benefit from in the long run to a very great extent — knowing that this must have an impact on the rest of society,” he told MPs.
“Even now, it is the rest of society which is suffering most from the consequences of the financial crisis.”
Sir Mervyn was replying to members of the Commons Treasury committee who asked whether he thought the proposals were the result of ordinary tax planning or morally repugnant.
He said: “It would be rather clumsy and lacking in care and attention to how other people might react. And in the long run, financial institutions… do depend on goodwill from the rest of society.”
Several banks are reported to have examined holding back the awarding of bonuses until the top rate of tax falls from 50p to 45p after April 6. A banker due a £1 million bonus could save £50,000 if it is made in the new tax year.
Goldman Sachs is also said to be considering delaying performance-related bonuses for 2009, 2010 and 2011. This year, its staff are predicted to get pay and bonuses worth £8 billion, an average of £250,000 each, as it is expected to announce a rise in profits to nearly £4 billion.
However, several other banks are reported to have decided against delaying bonuses because of the public outrage it would create. Anthony Browne, chief executive of the British Bankers’ Association, has warned that timing bonuses to avoid the 50p rate would not “restore trust” in banks.
Banks also came under fire today for “ripping off” customers by slashing interest rates on savings while keeping the cost of borrowing too high.
Andrew Bailey, a senior official at the Bank of England, told MPs that banks had cut rates for savers following the introduction of the £80 billion Funding for Lending Scheme last summer. This allowed them to obtain funds at lower than market rates, leading to competition for deposits “easing”.
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A spokesman for the British Bankers’ Association said: “The banks participating in Funding for Lending have committed to ensuring the scheme provides effective results for customers.”
