MoneyWeek article: Should bank bonuses be diverted to fund energy social tariffs

Bank bonuses are not just City excess; they are a performance tool. If banks want to attract people who can grow lending, manage risk and deliver returns, pay has to reward results. Since the bonus cap era, UK bank profitability and competitiveness have hardly looked world-beating, so doubling down on restrictions would be a strange answer. There is a fair debate about whether banks should contribute more to public finances, but cutting bonuses to fund energy bills risks treating pay policy as a piggy bank. A social tariff may be worth considering, but it needs a stable funding model, not a raid on incentives that help banks perform.

Energy bills didn't go up because bankers got paid too much. They went up because years of cheap money and a falling pound made everyone's cash worth less. The same forces that fattened those bank profits are the ones now squeezing families. Taxing bonuses to pay for cheaper energy sounds good. But it just creates another subsidy that never goes away, and hides a problem nobody wants to talk about. If you really want to help people with their bills, ask why the pound in their pocket buys less every year. Blaming bankers is easier. It also fixes nothing. Someone always has to pay. Changing who picks up the tab isn't the same as shrinking it

A permanent energy social tariff is sensible, but funding it by treating every bank bonus as spare cash is politically catchy rather than economically precise. The £25bn figure covers bonuses across financial services and insurance, not simply a pot sitting inside banks waiting to be taken.

Bonuses are taxable earnings and, for many employees, a genuine part of their remuneration rather than an optional perk for a handful of executives. Bluntly attacking them risks punishing workers, weakening London’s competitiveness and creating an unreliable revenue stream that rises and falls with performance.

Where banks make exceptional profits, there is a fair case for reviewing whether the sector’s tax contribution remains appropriate. But any increase should target profits, be carefully designed and avoid damaging lending or pushing activity overseas. A permanent social tariff needs permanent, predictable funding—not a policy built around whichever pay packet makes the best headline.

There is a strong case for helping households with energy bills. This is just the wrong way to pay for it. Start with the mechanics: the surcharge taxes bank profits, not bonuses, and pay is deducted before profit is even counted, so a big bonus year actually shrinks the base it feeds on. And for a top-rate earner, once you add employer National Insurance, well over half of every bonus pound already goes to the Treasury. The deeper flaw is the design. A social tariff cuts bills every winter, so it is a permanent commitment, yet bank profits are one of the most volatile numbers in the economy, flattered right now by high interest rates that are already falling. You cannot fund a bill that lands every winter with a windfall that only shows up in a good year. The pensioner rationing the heating deserves better than a promise built on the City's best year.

The idea that £25bn of bank bonuses is a pot of money waiting to be redirected into energy bills is politically attractive but economically misleading. That £25bn represents bonuses paid across the entire finance and insurance sector, and taxes aren't functionally ring-fenced - even National Insurance ultimately goes into the same consolidated pot.

Bonuses are already heavily taxed through income tax and NICs, with employer NICs on top, while bank profits face an additional surcharge. Further taxation risks distorting pay structures and pushing activity and talent to New York or Singapore.

There's a legitimate debate about the overall level of bank taxation, but it should be had on its own merits. If the government wants a permanent social tariff, it should explain honestly how it will be funded, rather than implying one industry's pay packets are the answer.