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Will Goldman Sachs call the UK government's bluff?

It has been revealed in the financial press today that US giant Goldman Sachs is seriously considering moving vast areas of its UK operation overseas. With Geneva seen as the potential beneficiary of the company's ongoing battle with the UK government, in light of the 50% windfall tax on banking bonuses, this will test the resolve of the UK government to push ahead with his highly controversial and potentially highly damaging tax initiative.

There is no doubt that the government has attempted to curry favour with voters as we approach the election and with bankers public any number one at the moment the 50% windfall tax on bonuses has been well received by many voters. However, as we have mentioned time and time again, the UK financial sector is the engine room of the UK economy and if large areas of this were to move overseas there is the potential to shift the balance of power elsewhere. London has been one of the leading financial, currency and commodity markets in the world for many years and some people believe the future of the City is seriously at risk.

However, it seems highly unlikely that the UK government can afford to announce a massive U-turn and the abolition of the 50% banking tax because this would have a detrimental effect at the ballot box. Gordon Brown and Alistair Darling are most certainly stuck "between a rock and a hard place".

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