Britain looks set to reap a windfall of at least £2 as its controversial tax on bank bonuses fails to deter banks from paying a round of big payouts.
With around three weeks to go before 2009 bonus packages are signed off, banking sources dismiss original government estimates that the 50 per cent tax on bonuses over £25,000 would raise around £550 million.
"It will be multiples of that," said one. "And there are a few banks which could have to pay that on their own."
Most banks look set to choose to pay the tax themselves, rather than risk enraging staff by paying them significantly less than overseas colleagues, especially after a bumper year for investment banking.
Industry sources said the major international banks were likely to swallow most of the cost themselves. That could see big bills for London powerhouses such as Goldman Sachs, Deutsche Bank, JPMorgan, Barclays and others.
Most banks say a final decision will be made near the end of this month, though Goldman and JP Morgan, which report earlier, could provide early indications of a trend.
Britain's tax has provoked outrage across the industry and sparked fears that London will haemorrhage staff and business to rival financial centres.
"If you talk to Americans in both New York and the West Coast, the view is absolutely uniform. They cannot understand why Britain is trying to kill the golden goose by the bonus super tax," said James Perry, a partner at law firm Ashurst.
"They think we've lost it."
Goldman is weighing up the impact of the one-off bonus tax as well as a host of other measures, and may decide to move groups of people abroad, a person familiar with the situation said. No decisions had been made, the source said.
The UK rules might have been met with incredulity by some, but other countries are imposing similar measures.
France is slapping a 50 per cent levy on financial traders' bonuses of above €27,500, while the US Federal Deposit Insurance Corp. is meeting next week over rules on pay.
All G20 countries, including the US and leading European Union countries, have agreed to guidelines on the structure of bank pay packages in an attempt to reduce excessively risky behaviour by bankers, blamed in part for helping sow the seeds of the credit crisis.
London's bonus pool was expected to recover to £6 billion for 2009, the CEBR estimated in October, up 50 per cent from last year, but well down from the record £10.2 billion paid out for 2007.
Government sources now say they could land at least £2 billion from the tax to help ease stretched state coffers, though the original aim of the levy was to force banks to rethink bonuses rather than raise cash.