Alistair Darling’s pre-budget report was never going to please people as he had a series of very tough decisions that has to be made - tax more and spend less. His contribution to the festive cheer was a bit more banker bashing, which always seems to please to populous, and a 2% reduction in the Bingo levy.

So, where a bank bonus pool is credited with more than £25k for any one employee it will be subject to a one off 50% windfall tax.

He justified this by saying that every UK bank had benefited weather directly or indirectly from government support and that taxing the bonus pool may encourage banks to re-build their core capital rather than paying away profits in remuneration. It is difficult to argue with either of these points.

However, this policy does raise a series of other issues that are far less clear cut and may result in Mr Darling’s policy being significantly undermined.

Firstly, who is a banker? Anyone who works for a UK registered bank would seem like a good definition. But I doubt it is so simple. There are banks of every size, colour and creed. Some banks simply operate a retail franchises, taking savings and making personal loans, others only provide advisory services or specialist products and then there are the large banks that do almost everything either directly or through a plethora of subsidiaries.

Many of these organisations could probably argue that they are not banks in the sense that they did not lend large amounts of money to poor credits or invest in toxic securities. For that matters many of them don’t even carry out the basic acts of taking deposits and lending money. If you are an M&A adviser or a tax specialist at a boutique bank that does not lend money are you a banker? Equally if these people are deemed to be bankers, then surely those that provide similar services from within accountancy firms or specialist consultancies must also be classified as bankers? What about the people who sell insurance at Direct Line, surely they are in the insurance business, well actually they are part of the RBS group, so are they bankers?

Given that the Treasury rarely thinks through these things before they are announced I doubt there is a definition as yet. Maybe they will just put a question on the tax return - are you a banker?

Secondly, will this tax work? I doubt it, there will be means around this surcharge. It only applies until the 5th April 2010 so banks may opt to pay people in the next tax year. Alternatively, banks may only pay a £25k bonus but might make available interest free loans to be repaid from next years inflated bonus (the tax is a one off so should not apply in 2011,) employees will get shares or options in lieu of bonuses or may have contracts moved to offshore service companies, with Goldman paying UK staff in the USA or Deutsche paying staff through Germany or the Channel Islands. There will already be an army of top brains looking for ways around this soon to be legislation and I am sure they will find a way, at least for the top banker who are the ones that a) carry most responsibility for the crisis but b) can afford the tax structuring advise to avoid tax.

This process will be helped by the fact that the effective tax rate for bonuses is now 70%+. People will generally accept a marginally higher tax rate but if a £100k bonus is now worth less than £30k by the time it reaches your pocket then that will prompt bankers (or most other people if they were in the same situation) to look at ways around this situation.  

Mr Darling estimates the new banker bonus tax will raise £500m. I bet it will be far less in reality but then again this is not about the money it is about moral values. I agree entirely that we should not reward those who almost created a systemic collapse of the financial system but the truth of the matter is that finance is so interwoven with every part of western society that it is impossible to accurately attribute blame on an individual basis.

I fully accept that in my banking career I contributed to the almighty debt fuelled asset bubble but I will now escape any tax penalty, whilst there are others who work at banks but contributed nothing to the credit crisis who will be taxed. Mr Darling had to take a stand and he is right to do so - it is a shame that he does not have sufficient sophisticated tools at his disposal to create a tax regime that will achieve the objectives that are so well supported by the British people.

At least we can all benefit equally from the reduction in tax on Bingo. Housey?

I have not had a great deal of respect for Alistair Darling since I met him in early 2007. He had breakfast with a group of bankers, of which I was one, and openly invited questions from the room. When I asked the Chancelor how he would deal with a UK recession? He answered that there was little need to consider such an eventuality as it was not going to happen….

Ok, so planning ahead and reading the signals were not be his strong point but I think he has finally got something right. In proposing to provide capital to the UK banks in exchange for preference share or a substantial stake we are adopting a far more robsut approach that the US governments poorly defined $700bn bail out or the blanket gurantee of its banks provided by Ireland.

The banks have two problems. Firstly, they can not fund their day to day activities as banks do not have the confidence to lend to one another. Secondly, their balance sheets are too weak to absorb the losses that they need to take before rebuilding their businesses.

By taking a stake in the banks, the government provides a bank with signifcant additional capital and an implicit guarantee that it will provide further funding if required to keep a bank solvent. This should help to create confidence around the UK banks, allowing them to borrow on the inter-bank markets to fund their activties.

The longer term fix is that the government cash injection will give the banks the capital base required to rebuild thier businesses. The first step will be to properly address the value of their assets (loans and investments.) These are currently in the books at artificially high levels, many of the loans and investments made in 2005, 2006 and early 2007 are not worth the paper they are written on but this is not refkected in the accounts. Without the fresh capital a bank could not admit to this as it would threaten its solvency and probably lead to its demise.

The government cash injection will allow this process to begin. Assets must be marked down and sold, this will create short term pain but it is the only way for a bank to re-emerge as a credible entity that can once again go about its business of lending to make a profit.

If the government can help create a group of well capitalised healthy banks they can then focus on their key function. Bank are the essential cogs that provide credit and finance to the UK economy. The failure of the banking system (which is where we were heading) would in turn destroy the economy. It is not good that each tax payer is putting £2,000 in to the banks but this is certainly better than the alternative.

The devil will be in the detail but hopefully Mr Darling supports his £50bn investment with suitable conditions. Banks must be compelled to restore discipline, to write down their assets, dispose of the bad loans and rebuild the bank in a manner that drives forward the UK economy in a sustainable way.

If Mr Darling succeedes in doing this his legacy may be more than his incredible eyebrows?

Alistair Darling, our Scottish chancellor, has been quite categoric that the blame for the current financial crisis should be attributed to The City.

So Northerners should blame their greedy Southern cousins! 

Just a minute, lets have a look at a few of those that have been hardest hit. The clues are in the names - Northern Rock, Halifax Bank of Scotland, Bradford & Bingley…

Maybe not so blameless up North?

Well not if you’re Gary Glitter or for that matter anyone in the property industry returning from holiday hoping that things were going to be different in September.  

I’ve just got back from the ususal short, restfull break in Ibiza; kids are far more tiring than clubbing ever was.

I went to Pacha once, after which one wag back in London asked if they have an OAP section in addition to a VIP section; I am in fact 4 years younger than Roger Sanchez, thank you very much Mr Tilbury.

I actually came back in a positive frame of mind about driving the business forward and was delighted to see the government talking up our collective prospects.  I don’t know what Alistair Darling has against 1948; having looked into this I can confirm that exactly 60 years ago was a good year for petrol heads; the Land Rover was invented, and a bad year for bald Indian pacifists; Ganhdi was assisinated.

But at least, James Max, The People’s Champion, is here to save us all from the bank’s and right their many wrongs. 

How not having a successful career in property and then not winning a reality TV program, qualifies you as a TV pundit and journalist is quite beyond me.

To busy to see you James? 

I’m sure Sir Fred Goodwin would love to make time to see some bloke who came third in The Apprentice three years ago if wasn’t tied up watching big brother, eating orphans and drowning kittens.