In the face of withering criticism, Goldman Sachs has abandoned a plan which would have allowed bankers to benefit from a cut in the top rate of income tax by delaying UK bonus payments until after the start of the new British tax year.
The Wall Street bank decided at a board meeting not to press ahead with the proposal after the governor of the Bank of England denounced the plan.
If adopted, the idea would have delayed the past three years’ deferred portion of Goldman’s UK bonuses being paid from February until early April. This could have saved bankers tens of millions of pounds in tax. The top rate of tax declines from 50 per cent to 45 per cent on April 6th.
Flurry of criticism
Although the plan was legal, the news prompted a flurry of criticism from lawmakers and the banking industry.
Addressing the House of Commons treasury committee earlier yesterday, Bank of England governor Sir Mervyn King condemned the idea.
“I find it a bit depressing that people who earn so much find it would be even more exciting to adjust their payouts to benefit from the tax rate, knowing that this must have an impact on the rest of society, which is suffering most from the consequences of the financial crisis,” he said.
Fellow bankers also criticised the move. On Monday, at a hearing of the parliamentary commission on standards in banking, British Bankers’ Association chief executive Anthony Browne said the initiative was bad for an industry that was trying to reinvent its image and restore faith in its ethics. “It clearly doesn’t restore trust,” Mr Browne said.
Goldman Sachs is the only major City of London institution not represented by the association.
About half of the big City institutions had considered delaying bonus payouts until after April 6th, according to tax experts. But Goldman had been the only leading bank to persist with the plan after rivals retreated, fearing further reputational damage on top of a torrid 12 months of scandals.
Goldman is expected to unveil much-improved earnings when it releases fourth-quarter results today. Analysts forecast it will report adjusted profit per share of $3.66 – more than double the $1.82 a share the bank posted in the same period last year. – (Copyright The Financial Times Limited 2013)
