Margereta Pagano: Should they stay or should they go?

Chancellor Alistair Darling's punitive PBR has provoked a fightback by the Square Mile and could even lead to a new brain drain

One of the most popular karaoke numbers at City Christmas parties this year is a particularly shouty version of The Clash's "Should I Stay or Should I Go?". It's good to know our bankers and traders have got their humour back. Only a year ago they were all heads-down, clinging to their jobs and defending their reputations. But a profession that had taken social standing as much for granted as its annual bonus bonanza has grown impatient with its pariah status. Alistair Darling and Gordon Brown know this, so that's all the more reason to be disappointed with their cack-handed approach to bonuses.

What would have been hailed as courageous and righteous a year ago stinks of simple opportunism and electioneering now. The result? No one wins. Everyone loses. Nobody learns anything. And the arguments about whether we'd be better off with or without the bankers, or certainly a reformed banking system, will join the cold turkey and new socks as part of this year's Christmas celebrations.

You can almost forgive the bankers for fighting back, particularly the foreign banks that have not been bailed out by the UK taxpayer and which are also now being taxed. They are all frantically working out how they can avoid paying this new 50 per cent bonus levy, or "payroll" tax, as it's being dubbed. It's good business, too, for the lawyers who are now out in force advising that the bonus tax is as "leaky as a sieve" and can be either avoided or mitigated by deferring payments over £25,000 until next year, as well as there being other options.

There is another, more prosaic, point. What is a banker? Apparently the Treasury is now scrambling around to find a definition that fits the 20,000 or so bankers that it needs to tax to get its £550m, while the banks are scrambling round looking to reclassify their staff. For the truth is that most of the City's top earners are not what most people know as bankers at all, but traders, analysts, fund managers etc. The irony is that most of the old-fashioned retail bankers responsible for the mess we are in – those at Northern Rock, HBOS, Bradford & Bingley and RBS – have since left, taking their comfortable pensions with them.

It's right that the financial industry should be made to pay for some of the mess; and money is the only pain the bankers understand. But it's important to remember this one-off bonus levy is a populist measure designed by Brown to give the public a taste of blood rather than an attempt to restructure or reform the financial system so we don't have asset bubbles starting all over again. Neither the one-off levy, nor Brown's latest campaign for a "Tobin tax", gets to the heart of the matter. And that is to question why those working in finance earn so much money in the first place, and to look at ways of making sure such excessive risk is never taken again.

The reality is that politicians and regulators don't want to face up to this conundrum. They are too cowardly to take on the big structural changes needed to break the oligopoly so tightly controlled by the world's largest banks, whether retail or investment banking, over the fees charged to customers. Breaking that cartel is what is required and what is being avoided.

Until the world's regulators get to grips with this market imbalance, bankers will go on earning vast sums and bonuses will rear their head again next year and the next. More to the point, the bankers will follow the money. Hong Kong and Singapore seem to be today's favourite hot tax spots. But it's not just the lower tax the bankers are following. There is a much bigger, structural shift going on in the world's financial capital markets, which means the serious flows of money are moving to countries such as Brazil, India and China.

So some of the UK's bankers will leave not only because of our punitive taxes, but because the markets will eventually move further east. Many big foreign banks based in London, will also be reconsidering moving on. I wouldn't be surprised if Barclays isn't thinking about a new home too.

What is even more worrying for the UK is that all the latest National Insurance and income tax increases may well prompt a new brain drain of some of our brightest young scientists and entrepreneurs, similar to the exodus of talent seen under the Labour government of the 1970s. Former Labour leader John Smith and Mo Mowlam, who spearheaded the "prawn cocktail offensive" to persuade everyone, especially those in the City, that they were no longer against wealth creation, must be spinning in their graves.