Tax raid on bankers planned by ministers

Tax raid on banks planned by ministers

For the first time ever in 315 years, ministers are drawing up plans for a tax raid on Britain’s banks worth hundreds of millions of pounds, The Sunday Telegraph has learned.

By Patrick Hennessy and Louise Armitstead
Telegraph, 17 Oct 2009

Banks could also be forced to pay more corporation tax Photo: PA

The radical move, being considered as a way of forcing banks to pay a price for the taxpayer-funded bail-out of the financial system, could include a one-off “windfall” tax on profits.

Banks could also be forced to pay more corporation tax by curbing the system that allows them to offset their losses against tax over a number of years.

Cabinet ministers and senior Downing Street officials want Alistair Darling, the Chancellor, to unveil tax moves against banks in his Pre-Budget Report (PBR), which will be announced to Parliament within six weeks.

Last night, in his weekly podcast , Gordon Brown, the Prime Minister, said his government would be “taking extensive action to reform the whole culture of the financial sector”. Any action is likely to hit all UK banks – even those which have not been part-nationalised, or given access to hundreds of billions of pounds worth of taxpayer-funded collateral.

There is understood to be “considerable anger”, both inside No 10 and among Cabinet ministers, over recent signs that banks are once again ready to unveil huge profits and bonus payments.

Last week it emerged that Goldman Sachs’s 5,500 bankers in the UK are in line for bonuses of £440,000 each after a profits surge.

Ministers are keen to avoid being damaged by the fallout from big bank profits, at a time when spending cuts are planned and the jobless total is poised to rise above 2.5 million. Any move to tax banks would pose a dilemma for David Cameron and the Conservative Party – forcing the Opposition to either object to it, and risk alienating public opinion, or to reluctantly support it.

Last night a senior Treasury source refused to rule out a tax raid on banks, adding: “Anything we have to say will be in the Pre Budget Report.” Finance sources said ministers already had a legal blueprint for the raid – the windfall tax on banks imposed in 1981 by Sir Geoffrey Howe, the Conservative Chancellor under Margaret Thatcher.

Then the Government imposed a £400 million special levy on the clearing banks, which were the only part of the economy not suffering from the recession.

The banks had to pay 2.5 per cent of their non-interest bearing current account deposits – which in the end amounted to 19 per cent of their 1981 profits.

Insiders say a tax that would hit independent banks such as Barclays, HSBC and Standard Chartered, would be justified because they have all benefited from a recovery that has been underwritten by governments around the world. However, any such move would be strongly resisted across the sector.

Barclays, which has fought against any Government involvement throughout the crisis, is likely to be the main target. Although it narrowly avoided part-nationalisation during the depths of the financial crisis last October, its share price dropped to as low as 51p in January as speculation mounted that it would have to be rescued.

As a result of the Government’s actions, Britain’s national debt has soared to more than £800 billion.

Lenders also face a tougher regime under new recommendations to be unveiled by the Financial Services Authority (FSA) aimed at stopping them from offering reckless mortgages to first-time buyers.