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Goldman Sachs backs down from delayed bonus tax plan Goldman Sachs backs down from delayed bonus tax plan
(about 4 hours later)
Goldman Sachs has backed down from proposals to defer bonuses to allow its top bankers to avoid the highest rate of tax in the face of criticism by Sir Mervyn King, governor of the Bank of England. 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.
King waded into the row over bonuses at Goldman Sachs, warning it would be "rather clumsy" and "lacking in care" of big banks to defer bonuses to allow highly paid bankers to pay a lower rate of tax. 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.
His comments at the Treasury select committee were made just as Goldman's compensation committee was meeting ahead of the bank's full-year results on Wednesday shortly after which bonuses will be announced to staff. The Goldman committee decided not to proceed with a plan it had been considering to defer parts of bonuses from 2009, 2010 and 2011 until after 6 April when the top rate of income tax will fall from 50% to 45%. 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".
Appearing before the Treasury select committee, King told MPs: "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 … knowing this must have an impact on the rest of society, when even now it is the rest of society that is suffering most from the consequences of the financial crisis." 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.
He went on to say that it would be "rather clumsy" and "lacking in care". "In the long run, financial institutions do depend on goodwill from society," said King. 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 government has faced criticism for refusing to intervene. Prime minister David Cameron and chancellor George Osborne faced criticism on Monday for refusing to step into the row. The Treasury said: "We do not comment on the tax affairs of individual companies, but we are clear that everyone must pay the tax they owe." 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.
Lord Oakeshott, the former Treasury spokesman for the Liberal Democrats in the Lords, had pointed out that this contrasted with the reaction in June to the tax affairs of comedian Jimmy Carr which the prime minister described as "morally wrong". 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 potential for banks to defer the bonuses into the new tax year has added a fresh twist to the annual row over the payouts to bankers. Goldman Sachs is among a handful of US banks due to publish full-year results this week and inform their staff about the size of their bonuses. European banks – including UK banks such as bailed-out Royal Bank of Scotland – make their announcements in February and March. 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.
Goldman is among the most generous payers in the City. A year ago, it set aside £8bn to pay its staff – an average of £238,000 each – a figure it is expected to at least match for 2012. 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.
David Hillman, a spokesman for the Robin Hood Tax campaign, which lobbies for a financial transaction tax, welcomed King's comments and urged the government to "get a grip" on the financial sector. RBS is facing additional pressure to restrain bonuses as it braces for a fine – possibly £500m – for rigging the Libor interest rate.
"Good on the governor for slapping the wrists of Goldman Sachs, but why is the government keeping schtum about a tax sleight of hand that will cost them (and us) millions? 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.
"It's only the start of bonus season and already banks are stirring controversy with their disconnect from the rest of society – it's time the government got a grip." 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".