LONDON: Britain and France urged world leaders Thursday to impose a tax on bankers’ bonuses, a day after London announced a one-off levy on the much-criticized finance sector benefits.
Seeking to show a united front days after a public Anglo-French spat over financial regulation, Prime Minister Gordon Brown and President Nicolas Sarkozy said there was an “urgent need” for a new agreement between banks and society.
“We propose a long term global compact that will encapsulate both the responsibilities of the banking system and the risk they pose to the economy as a whole,” they wrote in the Wall Street Journal newspaper.
“We agree that a one-off tax in relation to bonuses should be considered a priority due to the fact that bonuses for 2009 have arisen partly because of government support for the banking system.”
Britain announced Wednesday it was slapping a one-off 50-percent tax rate on bonuses above 25,000 pounds (27,600 euros, $40,700) to recoup cash spent saving the financial sector during the crisis.
France’s Les Echos financial daily reported Thursday that France wants to follow Britain’s lead and slap a 50-percent tax on bank bonuses over 27,000 euros ($40,000).
A Sarkozy aide said that the essence of the report was correct but said “the exact format has yet to decided” for the tax.
The move, has been seen by some British commentators as a populist domestic measure, with a general election due by June and Brown’s governing center-left Labour Party consistently behind in opinion polls.
Brown spent a decade as Britain’s finance minister before taking over from Prime Minister Tony Blair in June 2007 and had openly courted London’s City district, Europe’s financial hub.
But the global meltdown of the last 18 months has hit London harder than most, and Britain is still struggling to emerge from recession, unlike most of its European partners.
The Brown-Sarkozy article comes ahead of an EU summit in Brussels, and appeared designed to counter suggestions of a simmering row between the two countries over EU financial reform.
Both countries have traded barbs since former French Minister Michel Barnier was appointed EU commissioner in charge of financial services, with Sarkozy saying Britain “were the big losers” in the carve-up of new EU jobs.
Barnier’s appointment sparked outrage among British officials, who fear he is too anti-free market and could pose a serious threat to the City of London as a major financial hub.
Brown and Sarkozy then scrapped a planned meeting in London last week, prompting talk of a row over the appointments and the French leader’s remarks.
France also denied Tuesday it had snubbed Britain by not inviting its agriculture minister to Paris talks on the future of Europe’s farm subsidies.
Meanwhile, the Bank of England announced on Thursday that it was keeping its key interest rate at the all-time low level of 0.50 percent and maintaining its credit-easing plans amid a record British recession.
The decisions followed a two-day BoE meeting and came one day after Britain’s government admitted that the country’s recession was deeper than it had thought, ahead of a general election next year that it is expected to lose.
“The Bank of England’s Monetary Policy Committee today (Thursday) voted to maintain the official bank rate paid on commercial bank reserves at 0.5 percent.
“The Committee also voted to continue with its program of asset purchases totaling 200 billion pounds financed by the issuance of central bank reserves,” the BoE said in a statement.
Markets will have to wait until December 23, when minutes of the central bank’s latest meeting are published, for reasons behind the widely-expected announcements.
In a bid to tackle Britain’s sharp downturn, the BoE’s nine-member monetary policy committee (MPC) decided in March to slash its key lending rate to 0.50 percent. Also in March, the Bank of England began its extraordinary policy of pumping billions of pounds worth of newly-created money into a British economy struggling against the worst global downturn since the 1930s.
Britain’s central bank had in November decided to pump out another £25 billion of cash in a renewed attempt to boost lending and lift Britain out of its record recession. That decision took the BoE’s so-called quantitative easing (QE) program to a total of £200 billion (221 billion euros, $326 billion), with the nation mired in the longest recession since records began in 1955.
The BoE said on Thursday that it expects the program to take another two months to complete.
Under QE, the British central bank has purchased bonds from commercial institutions to try and boost lending to businesses and individuals which have seen funds dry up as a result of the credit crunch.
Although Britain has yet to follow the euro zone, France, Germany, Japan and the United States out of recession sparked by the global financial crisis, the country is forecast to have exited recession during the fourth quarter.
