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The British government fired a broadside at banks on Wednesday, slapping a 50-percent tax rate on bank employee bonuses above 25,000 pounds to recoup cash spent rescuing the financial sector.
Finance minister Alistair Darling said the one-off levy on bonuses worth more than 27,600 euros or 40,700 dollars would claw back more than half a billion pounds of state money that would be spent on helping the unemployed.
The banking industry hit out against the levy, claiming it would cause bankers to find work abroad. Darling meanwhile said he had decided against imposing a windfall, or extraordinary, tax on bank profits.
Excessive risk-taking by major British banks -- which have been rescued by the government in a series of costly bailouts -- has been blamed for fuelling the global financial crisis and sparking a worldwide recession.
In recent weeks, with Britain in the grip of a downturn and unemployment nearing 2.5 million, public anger has intensified over reports of large bonuses for top financiers, including at state-controlled Royal Bank of Scotland.
"There are some banks who still believe their priority is to pay substantial bonuses to their already high-paid staff," Darling told parliament on Wednesday.
"Their priority should be to rebuild their financial strength and increase their lending."
The tax on bonuses is a potential vote-winner for British Prime Minister Gordon Brown's Labour government, which is facing the prospect of an election meltdown next year at the hands of the opposition Conservatives.
The temporary bank payroll tax will apply to individual discretionary bonuses awarded from now until April 5, 2010.
Chancellor of the Exchequer Darling added that he was now giving the banks a choice between building up capital -- or paying large bonuses that will face the new tax.
"I am giving them a choice. They can use their profits to build up their capital base.
"But if they insist on paying substantial rewards, I am determined to claw money back for the taxpayer.
"I have decided to introduce from today a special one-off levy of 50 per cent on any individual discretionary bonus above 25,000 pounds," Darling told lawmakers.
The British Bankers' Association warned that foreign banks operating in Britain could be the worst affected.
"Viewed from abroad, those foreign banks which reward their UK staff with contractually-agreed bonuses are likely to be the hardest hit," BBA chief executive Angela Knight said in a statement.
"London may well look to them now like a significantly less attractive place to build a business."
Colin Stanbridge, chief executive of the London Chamber of Commerce and Industry (LCCI), said the bonus tax, along with government plans to raise the highest rate of income tax, would "undoubtedly damage London's standing as a financial centre."
"These tax rises were made for political, rather than economic, reasons and will raise little money for the government while sending the wrong signals to the rest of the world about the competitiveness of our capital."
The new tax on bonuses will be paid by the bank and not the employee, while anti-avoidance measures would also be implemented.
"High-paid bank staff will of course also have to pay, as usual, income tax at their top rate on any bonus they receive," Darling said.
"On a cautious assumption, which includes our expectation that some banks will rein back bonuses, this one-off levy is expected to yield 550 million pounds.
"This additional money will be used to pay for the extra measures, already announced, like help for the young and older unemployed to get back into work," added the finance minister.
Britain has spent billions of pounds bailing out some of the country's biggest financial institutions, including also Lloyds Banking Group, amid the fallout from the devastating global financial crisis.
