This may be what the public thinks it wants but at a time when the Government wants to increase tax receipts it makes no sense.
Imagine a bank has a profit of £10m. How much tax gets paid if it pays no bonus?
Just Corporation tax on the profits. That's 28% of £10m which is £2.8m
If the bank ignores requests for restraint and pays out £8m as bonuses, how much tax is paid?
Well, in addition to the bonuses the bank will pay employers' NICs on the bonuses. So that's 12.8% of the £8m, being £1,024,000.
The bank will still pay corporation tax on the remaining profits: That's £10m-£8m-£1,024,000 = £976,000. And 28% of that is just £273,280.
The total tax paid by the bank then is:
Employers' NICs : £1,024,000
Corporation tax: £273,280
Total.................. £1,297,280 - compared to the £2.8m tax if it paid none of the bonus.
But that's not the end of the story as the bankers will be subject to tax on the bonuses they receive: Income tax @50%, so that's £4m, plus 1% national insurance = £80,000
So the total tax paid if the bank pays £8m of bonuses is:
- Tax paid by the bank: £1,297,280
- Tax paid by bankers: £4,080,000
Of course if Labour's one-off banker bonus tax were reintroduced it would generate even more tax. But that's a different argument. The PM should be explaining why he doesn't want to do this, rather than arguing for smaller bonus payouts. That makes no sense as the bigger the bonuses the more tax is paid.