The U.K.’s Labour Party surprised the world and maybe itself by taking a tough line on City bank bonuses on Wednesday, according to the press, announcing a 50 percent surtax on banks’ bonus payrolls through next April.

The tax, which the banks themselves would pay, would come in addition to the national and other taxes paid by the workers themselves, already set to rise to 51 percent next year.

Headlines took the bonus sin tax as a bold fait accompli. If so, the tax would be great for New York, at least in the short term.

Banks wanting to cut their payroll could encourage American expats — already annoyed that their kids have developed funny accents, anyway — to move home. British banks like Barclays could move more top people to Lehman Brothers, whose U.S. investment bank assets its purchased last year.

Not so fast, though. Britain still knows that a unilateral punitive tax would be premeditated murder for its financial industry. This may be a staged drama, rather than the real thing. 

The British bonus tax would be “effective immediately” — but it requires legislation. That is, the immediacy is retroactive to Wednesday, if that legislation is passed.

And before it passes its legislation, Britain expects the rest of the world to follow, and not just France.

In a joint WSJ op-ed yesterday (Napoleon would not approve), UK PM Gordon Brown and French president Nicolas Sarkozy said, “We agree that a one-off tax in relation to bonuses should be considered a priority, due to the fact that bonuses for 2009 have arisen partly because of government support for the banking system. However, it is clear the action that must be taken must be at a global level.”

And French finance minister Christine Lagarde further said that British and French officials “will see President Obama in Copenhagen on the 17th. We want a level playing field. Maybe we will have at least an informal agreement by the end of the year.”

In other words — if America goes along with the bonus tax, so will Britain and France. If not, nobody will.

This makes a bizarre sort of sense in the bizarre too-big-to-fail banking world in which we live. If one big country enacts this tax, banks can move to another. But if all do it, the banks can’t — because they need the insulation of being headquartered in a “too big to fail” country.

Citigroup and the Royal Bank of Scotland can’t raise debt financing if they move to the Isle of Wight and escape implicit (and explicit) government guarantees. (That’s why the British tax wouldn’t apply to smaller independent hedge funds, which still have this mobility.)

So will Obama — and Congress — go along?

It may be that Brown and Lagarde are already confident that the answer is no, and that they’ll be able to say that they tried hard, but it’s all America’s fault why their own greedy bankers are still getting those big bonuses.

Read more about this here.


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