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CBI Boss Slams Call For Tougher Bonus Taxes

by Jason Gorringe,, London

16 February 2007

Director-General of the Confederation of British Industry (CBI), Richard Lambert on Wednesday called for a sense of perspective in the current debate regarding bumper City bonuses and the rise of private equity deals.

In an interview with the Sunday Telegraph last weekend, Northern Ireland Secretary Peter Hain warned that City firms could face a "big fight" unless they began to self-regulate to curb bonus money, or share it out with less deprived boroughs bordering the "opulent" square mile.

"There's a real problem of people on average incomes feeling there's a sort of super rich class right at the top," he told the paper. "Four thousand city workers receiving more than a million pounds each in bonuses. People don't feel that's proportionate. We've lost a sense of moral corporate responsibility here."

The Telegraph reported that this year's bonus pot is expected to be in the region of GBP8.8 billion (US$17.1 billion), much of which is likely to be invested in property within the capital, further inflating already out-of-reach house prices for ordinary London workers.

"I don't believe that people will only work in the City because they get those sort of bonuses. They don't need to offer them. Why don't they give two thirds of that GBP8.8 billion and invest it in charity or invest it in regeneration schemes for unemployed kids who are living a mile away from the opulence that there is in the City?" Hain argued.

"In the interest of the City, particularly if they don't want to invite attacks for greater regulation or changes in taxation, if they don't want to get into that kind of arena, then they have to show a lead," he warned.

However, according to the Financial Times, the Treasury played down Hain's comments, in an attempt to reassure the City that they do not represent government policy.

Speaking this week, Mr Lambert argued that financial markets are not "a zero sum game" but generate major financial benefits for the UK. He described the bonus system, which has seen some City workers reap multimillion pound windfalls, as a profit-share scheme which rewards staff during the good times but not in the lean ones.

The CBI Director-General acknowledged concerns about the impact of the vast wealth in the City of London on social cohesion in the UK. Many people feel uncomfortable about the disparity between the salaries of a few high-fliers and the large numbers remaining on low incomes, he admitted, but stated that the answer is not "heavy-handed regulation or attacks on the City which risk driving talent overseas".

He compared the City's star performers to Premiership footballers, who can command equally vast rewards from employers eager to retain their the highly-portable skills.

He also praised the City for its success in growing its markets in bonds and derivatives, for attracting hedge funds to the UK, and for hosting so many flotations to the London Stock Exchange.

However, he warned that City finance houses and private equity need to do a better job in explaining the benefits they create, he said, or they could fall foul of clumsy attempts to curb them, which might easily "kill the goose which is laying the golden egg".

The easily-transferable nature of financial services, with their virtual markets and ability to relocate to more favourable locations if business conditions turned against them, has been seen in New York and London recently, Mr Lambert pointed out.

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