Bank scraps scheme which would have allowed top staff to avoid 50% rate after pressure from Mervyn King and government
Goldman Sachs has been forced into an embarrassing climbdown from plans to allow its highly paid bankers to avoid the 50% top rate of tax, following public intervention by Bank of England governor Sir Mervyn King and pressure from the government.
But the Wall Street firm is expected to spark a fresh row over City bonuses on Wednesday by revealing that its bankers have enjoyed a 10% pay rise when it announces profits for 2012.
Goldman was already facing condemnation about proposals to defer bonuses until after 6 April, when the top rate of income tax falls to 45% from 50%, when King waded in. The Bank of England governor told MPs he regarded such attempts as “depressing”.
Further pressure was being exerted behind the scenes by the Treasury minister, Sajid Javid, who spoke to Goldman bankers to seek assurances that the bonuses from 2009, 2010 and 2011 would not be delayed.
King told the Treasury select committee: “I find it a bit depressing that people who earn so much seem to think that it’s even more exciting to adjust the timing of it to get the benefit of the lower tax rate …which they will benefit from in the long run to a very great extent knowing this must have an impact on the rest of society, when even now it is the rest of society which is suffering most from the consequences of the financial crisis.”
The phone call between Javid and Goldman bankers had been scheduled late on Monday night and took place on Tuesday afternoon just after the bank’s remuneration committee met to discuss bonuses for 2012 and pulled any plan to delay bonuses.
The bank’s pay committee was meeting ahead of the bank’s full-year results, after which staff will be informed of their bonuses, amid forecasts that the firm will defy the downward trend in the City and raise average payments. Sanford Bernstein analyst Brad Hintz predicted average pay per employee at Goldman would rise from around £238,000 to £260,000 after a wave of redundancies.
The shadow Treasury minister, Chris Leslie, predicted that the bonus season being launched by Goldman this week will be “very lucrative for thousands of bankers” as a result of the cut to the top tax rate.
JP Morgan, hit by the London Whale trading affair, also reports on Wednesday amid expectations its chief executive, Jamie Dimon, will be docked part of his bonuses for the $6bn (£3.7bn) of losses which this week sparked regulatory intervention on both sides of the Atlantic. European banks, including the bailed out Royal Bank of Scotland, do not publish their results for another month.
RBS is facing additional pressure to restrain bonuses as it braces for a fine – possibly £500m – for rigging the Libor interest rate.
The government’s private approach to Goldman contrasted with Prime Minister David Cameron’s description of the tax affairs of comedian Jimmy Carr as “morally wrong” last summer.
David Hillman, a spokesman for the Robin Hood Tax campaign, which lobbies for a financial transaction tax, urged the government to “get a grip” on the financial sector at the start of the bonus season.
Lord Oakeshott, former Treasury spokesman for the Liberal Democrats in the Lords, said that if Goldman wanted to keep working for the government on major products the bank could not “spit in taxpayers’ faces”. “It’s high time they behaved like good citizens, not barrow boys,” Oakeshott said.
Michael Cohrs, who sits on the Bank of England’s new financial policy committee, the body charged with stopping systemic risks from overwhelming the financial system, told the Treasury select committee that the government had “probably” overpaid for its stakes in RBS and Lloyds during the 2008 banking crisis. He added that the taxpayer was unlikely to make a profit, even though US taxpayers have made a profit on bailouts across the Atlantic.
Banks are already being told to establish how much more capital they need. When asked for a “ballpark” figure for RBS and Lloyds, Cohrs said it was a “big number” that should not be made public as “it will spin out of control in the journalist community”.