Bonuses must be responsible - Darling

 

Chancellor Alistair Darling said on Sunday the government remained opposed to "wholly unreasonable" bonus payments at banks bailed out by the taxpayer after the global financial crisis.

"We are not going to be held to ransom by people who believe that we can pay extraordinary high bonuses without regard to what is going on" he told BBC television.

Speaking ahead of his pre-budget report due on Wednesday, Darling would not be drawn on media suggestions he was considering a windfall tax on bank bonuses.

The BBC later reported that the Treasury was considering an annual 1 billion pound levy on banks over three years.

A source familiar with the matter told Reuters there were huge practical difficulties in imposing a one-off levy on banks in London.

"You wouldn't want to do anything that eroded banks' capital" the source said.

George Osborne, shadow chancellor for the Conservatives, leading opinion polls ahead of an election, which is due by mid-2010, told BBC television in a separate interview he would not rule out a windfall tax on bonuses.

He said, however, it would better to make sure banks were not able to offset their massive losses against future profits.

"Even though they will be making money, they won't be paying tax, and I don't think that is acceptable, given the help that we have provided" said Osborne. 

"When the banks start making profits again, the banks should start paying taxes again."

BAD DEBTS

Darling said Royal Bank of Scotland, set to become 84 percent state-owned after its latest bailout, has yet to come to the government with proposals for this year's bonuses.

RBS warned last week it could struggle to hire or retain key staff after the government took control of bonuses in return for insuring its bad debts.

Prime Minister Gordon Brown, moving to allay fears of a mass walkout by the bank's board, said on Thursday that RBS would not be singled out for unduly harsh treatment over bonuses.

Darling said he was not opposed to bonuses in principle, noting that many bank employees did not earn "stratospheric" salaries.

He said bonuses should be largely paid in shares and be able to be clawed back, but they have a role in returning banks to the private sector.

"In order to get RBS back onto a proper footing and off the government's books, you've got to make sure you've got sufficient incentives for people who are doing a good day's job" he said.

"What you can't do is have bonuses that are wholly unreasonable and not related in any way to improved performance. These bonuses have to be reasonable and they have to be responsible."