Goldman Sachs Inc. has scrapped plans to delay paying bonuses to its bankers in Britain to exploit an income tax cut for top earners after Bank of England Governor Mervyn King criticized the move.
Earlier on Tuesday, Mr. King chided the U.S. investment bank for considering a delay in bonuses until after April 6 when the top tax rate falls to 45 per cent from 50 per cent.
“The delay had been under consideration and the decision was made today not to do it,” a person familiar with the situation said.
Goldman Sachs declined to comment.
Mr. King’s intervention ratcheted up the pressure on Goldman, which sparked a furore last week when the bank’s plan emerged.
“I find it a bit depressing that people who earn so much seem to think that it’s even more exciting to adjust the timing of it to get the benefit of the lower tax rate,” Mr. King told a panel of British MPs when asked about Goldman’s plan.
The head of the central bank said that while Goldman’s plan was not unlawful, the tax reduction was being done at a time when the rest of society was suffering from the consequences of the global financial crisis.
Britain had to shore up and nationalize banks during the 2007-09 crisis, which has sparked public anger over bonuses at a time when the government is freezing public pay and cutting expenditure.
Chancellor George Osborne, who introduced the reduction to the top rate of tax, has come under pressure from campaigners to prevent banks such as Goldman from avoiding tax by delaying their bonuses.
Mr. King, who has a salary of £305,000 a year, told parliament’s Treasury Select Committee it was “clumsy” to pay bonuses in such a way and betrayed a lack of attention to how others might feel.
“And in the long run, financial institutions, like all large institutions, do depend on goodwill and the rest of society. They can’t just exist on their own,” Mr. King said.
Goldman’s plan touched on two sensitive issues that have triggered public anger in Britain: the size of bankers’ bonuses and why large international firms like Starbucks Corp. and Amazon.com Inc. have been able to pay so little U.K. tax in recent years.
The Goldman bonuses in question were deferred from 2009 to 2011, a person familiar with the bank’s operations told Reuters on Sunday.
The bank recently brought forward payments of deferred stock to executives in the United States to 2012 to beat tax hikes implemented for top earners this year.
“Political pressure in this area is likely to grow. Already the Labour opposition has attacked the government for giving Goldman an opportunity to reduce taxes on bonuses,” U.K. shareholder advisory firm PIRC said in a note on Tuesday.