Investment bank backs down over delayed bonuses

Goldman Sachs yesterday decided not to hold back investment bankers’ bonuses until the new financial year to benefit from the cut in the top rate of income tax from 50p to 45p, which comes into effect on April 6.

The development emerged just hours after Bank of England Governor Sir Mervyn King delivered a broadside at anyone planning to defer their bonus in this way, which he said would be “depressing” and “lacking in care and attention” to the rest of society.

He warned banks that they risk losing public goodwill if they defer payments to exploit the cut in the top rate, announced by Chancellor George Osborne in last year’s Budget.

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Over the past few days, it became known that Goldman Sachs was considering holding back bonuses until after April 6, a move which could potentially cost the Treasury millions of pounds.

The company, which publishes its full-year results today and is expected to inform staff of 2012 bonus levels shortly afterwards, has declined to comment publicly on the issue. But, according to people familiar with the process, the bank’s compensation committee decided at a meeting yesterday not to go ahead with the deferral.

Sir Mervyn made no secret of his distaste for the idea, telling 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.”

During a hearing of the House of Commons Treasury Committee yesterday, Labour MP Teresa Pearce asked 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, 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.”

David Hillman, spokesman for the Robin Hood Tax campaign for a financial transactions tax, said: “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?”