France follows UK on bank bonus tax

France on Thursday said it would follow Britain’s lead in levying a supertax on bankers’ bonuses giving added momentum to global efforts to curb high levels of financial sector pay.

Britain’s one-off 50 per cent tax on discretionary bonuses, announced on Wednesday, provoked fury in the City of London, but the unilateral move has emboldened other leaders to take action ahead of what is expected to be a bumper bonus round for bankers.

One French government official said a bonus tax had been under consideration for some time but that President Nicolas Sarkozy had feared it could damage Paris as a financial centre. “The fact that London has introduced it has changed the landscape,” the official said.

The French government is still working on the details of its levy but intends to bring Paris into line with London by forcing banks to pay 50 per cent tax on bonus pay-outs for 2009 above €27,000 ($39,700).

Angela Merkel, Germany’s chancellor, said the UK’s idea of a windfall tax had “charm” and would have salutary effects on bankers but it appeared unlikely that Germany would follow suit.

However, German bankers were on Thursday night set to bring forward reform of rules on pay and bonuses for this fiscal year, in what appeared to be an attempt to forestall any action by Ms Merkel.

The move by Alistair Darling, Britain’s chancellor of the exchequer, to levy the windfall tax has aroused interest among some Democratic politicians and left-leaning commentators in the US. Paul Krugman, the Nobel prize-winning economist, wrote on his New York Times blog: “Darling, I love you.” Although he said he wanted to study the plans’ details, Mr Krugman wrote “on the face of it this looks entirely reasonable”.

Goldman Sachs, the US investment bank, on Thursday said it was to eliminate cash bonuses for its top 30 executives this year and give shareholders a chance to vote on its compensation programmes in a bid to quell public anger on executive pay.

The Swiss federal finance ministry in Bern expressed caution about any one-off bonus tax, noting taxation in the decentralised country was largely up to Switzerland’s 26 cantons.

However Britain, France and Germany all went to see an internationally agreed plan to squeeze bank profits in future years, to insure against a repeat of the financial crisis.

Gordon Brown, Britain’s prime minister, wrote to European leaders ahead of an EU summit in Brussels on Thursday to call for a “global compact” with the banking sector, including the possibility of forcing banks to pay an insurance premium for their risky activities or a “Tobin tax” on transactions.

However, European leaders accept that such measures could only be adopted on a global basis. Tim Geithner, US treasury secretary, has said the US would oppose a Tobin tax.