Alistair Darling in his PBR announced a new 50% payroll tax on banks and building societies paying discretionary bonuses of £25,000 or more. This new tax, which will be payable by the banks and building societies and not by the individuals is expected to raise £0.55 billion between now and 5th April 2010.

Interestingly the tax only applies to bonuses payable between 9 December and the end of the current tax year. This would imply that the Chancellor expects bonuses of £1.1 billion to be paid in that three and a half month period. Perhaps he believes there will be a lot of bonuses paid before Christmas.

There is however one word in his announcement that initially raised a question mark, and that was the word 'discretionary'. Reviewing the press releases however makes it very clear that the new tax will apply to both 'discretionary' and 'contractual' bonuses.

It looked at first sight as though the Chancellor was just trying to deter banks from paying bonuses that they are not already by law obliged to pay but it now seems clear that it is also a revenue raising measure albeit of fairly modest proportions. This appears to be a win-win situation for the Chancellor, either the banks will be discouraged from paying large discretionary bonuses or the government will increase the tax take. They will in any event gain the tax on contractual bonuses.

The benefit to the Chancellor will be further enhanced by the fact that bank payroll tax will not be taken into account when calculating the banks profit or loss for other tax purposes.