Bonus balance

THE mere mention of the words "banks" and "bonuses" in the same sentence continues to cause apoplexy three years after the culture of excess at Northern Rock brought the industry crashing down.

This view is likely to be reinforced by the imminent payment of bonuses amounting to as much as 7bn, even though investment banking has largely flatlined in the past year.

While the British Bankers Association, headed by one-time Sheffield councillor Angela Knight, has denied that it has been involved in talks to reduce the payments, such payouts are likely to enrage the country at large as householders come to terms with the Government's spending cuts. Having been bailed out by taxpayers, the banking industry per se needs to recoginse the need to act responsibly – especially as the lending of money to small businesses is slowing economic growth.

Yet, even though bankers have a lower reputation than estate agents and second-hand car dealers, some perspective is required. A new levy on bank balance sheets comes into force next year in response to public opinion and will generate 8bn over four years.

However, without global agreement on bonuses, it would be counter-productive if the Government taxed the banks out of the country. Through corporation tax, they still contribute vast sums to the Exchequer – revenue that the Treasury cannot afford to lose – and the financial services sector employs tens of thousands of people across the UK. If the banks up sticks, who will fill the resulting jobs void?