The Conservative's tax proposals aren't great for banking jobs either
While Alistair Darling's likely announcement of a windfall tax on bonuses in today's PBR is causing apoplexy in the City, the Conservative's tax proposals aren't exactly great either.
Last night, David Cameron came out in support of a 60% tax on bonuses above a certain level. In addition, George Osborne is proposing that banks be prevented from carrying losses over from one year to the next, thereby exempting themselves from tax.
In the past few years, numerous banks have benefited from the ability to carry over losses. In 2008, for example, it emerged that Merrill Lynch had booked 13bn of losses through its London subsidiary and would therefore be exempt from paying UK tax for decades. According to the Telegraph, RBS and Lloyds banking group have also respectively accumulated an estimated 10bn and 6bn in 'deferred tax assets.'
We suspect that sudden eligibility for London taxes could dissuade the likes of BofA Merrill from growing its business in London to the extent it might have done if its business here were still tax free.
Equally, jobs could also be lost from existing businesses - particularly BarCap's structured capital markets group, which thrives on trading tax credits (but may equally benefit from increased demand for its other services).
Most of the people we spoke to said the effects of the Conservative proposals would be felt long term. "Banks wouldn't going to cut staff because of them, but this would be a determining factor going forward," said Simon Maughan at brokerage firm MF Global.
"The really big hit would be to the UK's reputation," said John Whiting tax policy director at the Chartered Institute of Taxation. "It starts to make the UK tax system look like it changes a lot. It's the collateral damage that's the issue."
