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Pre-Budget Report: 50% tax on bankers' bonuses above a level that could be as low as 25,000

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Alistair Darling has announced plans to tax bankers' bonuses in his Pre-Budget Report speech.

The chancellor of the Exchequer announced today banks will face a one-off 50% levy on bonuses above a level that could be as low as £25,000.

According to Darling, the tax has been designed to prevent excessive bonuses, rather than raise Government revenue.

He said: "No bank has not benefited from the taxpayer either directly or indirectly. So I am giving the banks the choice: use profits to capitalise or pay excessive rewards which I will claw back."

Ben Barrat, head of talent acquisition at Alexander Mann Solutions, said: "Any restriction on bonuses is always going to have an impact on employee retention.
 
"We have already seen these banks offering 30%-40% increases in base salary as a way of retaining staff without using bonuses. As restrictions tighten, this is likely to continue with employers offering share options and other benefits instead of a straightforward cash bonus.
 
"Currently there is a kind of two-tier system, where businesses that aren't state-financed are looking to take advantage of the talented people who are looking to move on.  

"Workers in the City tend to have a very good idea of what is going on in other businesses and they know that, at the moment, there's a good chance that the grass is greener elsewhere."

Darling ruled out the option of a windfall tax on banks.

Commenting on plans to ‘tax the rich', Richard Mannion, national tax partner at Smith and Williamson, told HR magazine: "A windfall tax on bankers' bonuses would have been a human rights violation because only bankers are being singled out.

"I would have expected, if Darling wanted to tax bankers, that he would have imposed a 60p ‘super tax' on those earning more than £1,000,000. That way all the very high earners would be included, not just those working in the banking sector."

Darling confirmed no more changes to income tax in 2010. However, he did suggest "tough" anti-avoidance measures.