The UK’s biggest banks are in negotiations to almost half the amount they pay out to staff in New Year bonuses in a bid to avoid potential tax penalties and avert another PR disaster.
According to the BBC, the banks are holding secret talks about the issue under the umbrella of the British Bankers Association, with one suggestion being to cut total pay-outs from £7 billion to $4 billion.
One participant said: “What’s the most we could achieve? Right now, the expectation is that banks in the City will pay out around £7 billion in bonuses. Maybe we can cut that to £4 billion. But although that would be a huge reduction, £4 billion is still a big number – and we’ll still face attacks.”
As the rest of the economy tightens its belt amid swingeing coalition government budget cuts and fears of a double-dip recession, the banks continue to be accused of not lending money to small businesses, making the bonus issue a contentious one.
Business Secretary Vince Cable has also indicated that the banks could face a tax hike if they pay “outrageously large” bonuses.
But the banks fear that jointly agreeing a cap on performance-related pay-outs could leave them open to accusations of competitive collusion, which could, in turn, result in prosecution by the Office of Fair Trading.
One banker said: “One of the great paradoxes about all of this is that ministers would love us to agree to cut bonuses, but they’re powerless to stop us being prosecuted under competition law.”
There are also worries that a cap on bonuses could lead to top talent relocating to other financial centres where there is less concern over big pay-outs. Wall Street in New York, for example, is resistant to the idea of a mutual agreement on restricting bonuses.
One banker said: “There’s no chance that the big US investment banks will follow our example, which means that business and good people could leave London for New York or elsewhere if we’re seen to be paying less than the market rate.”
Wall Street is expected to pay out about $20 billion or £12.4 billion in bonuses this year, about 80% higher than the predicted pot in London.
