Leading City figures hit out this weekend at plans to slap a global tax on investment banks and institutions, set to be detailed by the Chancellor, Alistair Darling, in this week's Budget.
Mr Darling is expected to back a new levy on large banks, funds and companies that pose a systemic risk. Controversially, he will also call for the levied cash to go straight to the Exchequer rather than to a global banks' insurance fund. He will say that Britain's support for a banks' tax would be predicated on international agreement for implementation.
The Tory leader, David Cameron, said that he would go further than Labour, promising to introduce a tax without international support. Mr Cameron said a tax, along the lines of that introduced in the US by President Barack Obama, would raise billions of pounds for taxpayers.
Bankers and trade associations described both plans as naked revenue-raising measures intended to boost Britain's ailing finances rather than addressing issues of bank risk-taking. They added that further taxation was likely to drive more firms away from London and damage the Square Mile's already battered reputation.
One leading banker, who declined to be named, said: "They are deluded if they think this will address issues of systemic risk. Pile this on top of the bonus tax and the 50p top rate income tax and Great Britain doesn't look like a great place to do business. This is payback time."
This weekend's move by both parties to go-ahead with a levy marks a big switch in policy. Until now the Chancellor and Gordon Brown had favoured a Tobin-style tax on bank transactions. Mr Cameron's decision to push through a tax without international agreement is because he believes there is growing support around the world for such a levy. The International Monetary Fund is likely to support a global tax when it publishes its report on the issue next month, and Sweden has introduced a tax similar to President Obama's.
One banker said: "This is kite-flying, gimmicks by politicians who want to show the public they are reacting to their anger. I'm not sure they will ever get agreement." News of a bank tax comes as Mr Darling prepares for what's likely to be his final Budget. Better than expected borrowing figures released last week mean he is likely to dole out more generous pre-election sweeteners than many had envisaged.
Keith Wade, the chief economist at asset manager Schroders, said Mr Darling's biggest challenge was to show how Britain's giant £166bn deficit will be reduced. "The rating agencies have high expectations and Mr Darling will need to reassure them if he is going to keep them at bay," he said.Reuse content