If you work in banking in London, or for a British bank anywhere, you need to hope that the Conservative Party wins the UK election. A Labour win could be very bad indeed for British banking jobs.
Analysts at Deutsche Bank have written a note reminding everyone that a Labour government will impose a bonus tax of 50% on all bonuses above £25k. “If this proposal is enacted as a permanent feature of the UK banking landscape we would expect UK banking headcount and investment to fall, basic salaries to rise, bank credit more expensive, earnings to be more volatile due to higher fixed costs, and shareholders worse off,” they say.
To put things fully into perspective, the analysts points out that for every £50k in post-tax bonus that banks in the UK pay their staff under Labour’s proposals (which include increasing the marginal tax rate to 50% above £150k), they will incur a pre-tax operating cost of £150k. Nor will banks be able to sidestep the tax by increasing role-based allowances instead: Labour wants to include them in the net.
Last time the Labour Party introduced a bonus tax, in 2009, it applied to all banks operating in the UK, irrespective of nationality.
If the new bonus tax is similarly structured, it could encourage banks to move people out of London. Barclays’ investment bank already employs more registered staff on Wall Street than in the City of London; the ratio could shift even further in favour of Wall Street in future.