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City Bonuses Should Be Shared Or Taxed, Says Senior Labour Figure

by Robert Lee,, London

13 February 2007

The United Kingdom Treasury has played down comments made by a senior government minister calling for City banks and investment houses to face tougher tax and regulation unless they share out the "grotesque" amounts paid to their employees in end-of-year bonuses with charitable groups.

In an interview with the Sunday Telegraph, Peter Hain, currently Northern Ireland secretary and thought to be a leading candidate for the deputy leadership of the ruling Labour Party, 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 has played down Hain's comments in an attempt to reassure the City that they do not represent government policy.

The Treasury has been keen to cultivate a pro-business image with the City in recent months, culminating with the first ever meeting between Chancellor of the Exchequer, Gordon Brown, the Economic Secretary, Ed Balls and the High-Level City Group to discuss proposals to maintain and enhance the City of London's competitiveness throughout the world.

The meeting resulted in the government's announcement that it would work with HM Revenue & Customs (HMRC) to address business concerns on tax administration, and to assist the Financial Services Authority (FSA) and HMRC to modernise the regulatory and tax framework to ensure that it keeps pace with opportunities in markets of traditional UK strength, such as asset management, along with new and innovative areas such as hedge funds and Islamic finance. The government also said it would consult with industry to ensure tax rules in the Offshore Funds Regime do not act as a barrier to commercial development of multi-tiered funds.

The UK is the world's third largest asset management centre, and arguably the largest international centre. The UK is also the world's fastest growing centre for hedge fund management.

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