Jan 15 2013
Wall Street giant Goldman Sachs has backed down on plans to defer bonus payments to UK staff until the new financial year, after coming under pressure from MPs, the Bank of England and the Treasury.
Bank of England Governor Sir Mervyn King delivered a public broadside at the plan, telling MPs it would be "depressing" and "lacking in care and attention" to the rest of society.
The proposed move could potentially have cost the Treasury millions of pounds by allowing bankers receiving bonuses to benefit from the cut in the top rate of income tax from 50p to 45p, announced by Chancellor George Osborne in last year's Budget, which comes into effect on April 6.
It is understood that Treasury minister Sajid Javid contacted Goldman on Monday following press reports of its plans, and arranged a phone call to discuss the issue. But by the time of the call, the bank's compensation committee had met and decided to drop the scheme.
The company, which publishes its full-year results on Wednesday and is expected to inform staff of 2012 bonus levels shortly afterwards, has declined to comment publicly on the issue. Its decision emerged just hours after Sir Mervyn lashed out at the deferral plan during an appearance before the House of Commons Treasury Committee.
He told MPs: "I find it a bit depressing that people who earn so much seem to think that it is even more exciting to adjust the timing of it to get the benefit of a lower tax rate - which they will benefit from in the long run to a very great extent - knowing that 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.
"I think it would be rather clumsy and lacking in care and attention to how other people might react."
Labour MP Teresa Pearce prompted the Governor's comments by asking Sir Mervyn whether deferring bonuses to take advantage of the lower tax rate was "ordinary tax planning or... morally repugnant".
The Governor replied that such a scheme was "clearly not unlawful" and that investment banks were "in a privileged position" in being able to adjust the timing of the payment of bonuses to benefit from changes in the tax regime.
But he warned that they risked negative publicity and public anger, telling the committee: "In the long run, financial institutions, like all large institutions, do depend on goodwill from the rest of society. They can't just exist on their own."