Please turn on JavaScript. Media requires JavaScript to play. Advertisement Chancellor Alistair Darling has announced plans for a one-off super-tax on bankers' bonuses as part of his pre-Budget report. He introduced a temporary levy of 50% on any individual discretionary bonus paid above £25,000. Mr Darling said the banks, rather than the bankers, would pay the levy, with anti-avoidance measures introduced immediately. The move could raise £550m, which would be used to help reduce unemployment. The temporary measure comes into effect immediately and will cover bonuses paid between now and April 2010. Bankers will still have to pay income tax on any bonus they receive as usual. Time to rebuild The new tax is designed to discourage banks from awarding large bonuses to employees in the wake of the major taxpayer support they have received in the financial crisis. HOW THE SUPER-TAX WORKS Bank bonuses worth more than £25,000 will be taxed Banks will be charged 50% of the value of the bonus Bankers themselves will not pay the super-tax Bankers will still pay income tax on their bonuses as usual The tax applies to all bonuses awarded up to April 2010 "There is no bank which has not benefited, either directly or indirectly, from [government] help," Mr Darling said. "This should be a time for banks to rebuild their capital base and become stronger. "However, there are some banks who still believe their priority is to pay substantial bonuses to their already high-paid staff. "So 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." Competitiveness concerns The new measure will not be welcomed by banking chiefs in the City, who have expressed concern over the impact of higher taxation on London's competitiveness. Angela Knight, chief executive of the British Bankers' Association, said she was particularly worried about the reaction of foreign banks operating in London. Bankers say further taxation could harm London's competitiveness "Viewed from abroad, those foreign banks which reward their UK staff with contractually-agreed bonuses are likely to be the hardest hit," she said. "London may well look to them now like a significantly less attractive place to build a business. "Only concerted international agreements will succeed in reforming remuneration in the financial sector." The UK is the only country so far to impose a super-tax on bank bonuses. Earlier the president of Barclays, Bob Diamond, warned that measures making London less competitive could see bankers move elsewhere. "Both financial capital and human capital are extremely mobile," he warned. Anti-avoidance measures Concerns over the workability of the new tax have also been raised. PRE-BUDGET REPORT DOCUMENTS

Documents in full [3.87MB] Most computers will open this document automatically, but you may need Adobe Reader Download the reader here In his speech, Mr Darling said that anti-avoidance measures would be introduced to prevent banks from taking such actions. But the Liberal Democrat Treasury spokesman, Vince Cable, questioned how the government would stop banks simply paying their employees a higher salary instead of a bonus. Toby Ryland, a partner at the accountants Blick Rothenberg, said he was also unimpressed. "Those that may be affected can be expected to arrange their affairs so as to fall outside the measures," he said. "There is already evidence of bonuses having been paid in advance with a view to avoiding this additional tax." However, banks will not be able to avoid the taxes by deferring bonuses until after April 2010, when the temporary measure ends. The Treasury says that bonuses promised or paid for work done in 2009 are liable to be taxed. A senior conservative told the BBC that the party shared concerns over tax avoidance, but said they would not be opposing the new measure. The shadow chancellor, George Osborne, said that the real test of the new tax would be whether it "curbs bank bonuses instead of bank lending".



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