The proceeds of a new tax on banking assets, which could raiseup to £5bn a year, should be available to national governments to use as they see fit, Alistair Darling insisted yesterday.
In a letter to fellow finance ministers in the G20 group of industrialised nations, which is trying to agree an international approach to such a levy, the Chancellor warned that if the proceeds from the tax were paid into some sort of global fund, there was a danger the banking industry would see it as an "insurance policy to benefit individual institutions, shareholders or creditors".
"To minimise moral hazard, the proceeds of a levy should go into general taxation rather than a stand-alone fund," Mr Darling added.
"While internationally co-ordinated, the proceeds of any levy should be for national governments to use." The Chancellor's letter comes amid growing consensus that the banking industry should contribute in some way towards the implicit benefit it gets from the fact that governments have stood behind the largest institutions.
G20 members are moving towards backing a levy on banks' assets, though disagreements remain about the size and structure of such a charge, as well as on how the money might be used.
Some members believe the levy should underpin an insurance scheme that could be tapped into in the event of future financial crises, an approach that Mr Darling effectively ruled out yesterday.
While the Chancellor rejected the idea on grounds of "moral hazard", his critics will note that, were the levy to be introduced along the lines the US has suggested, at around 0.15 per cent of bank balance sheets, the UK would raise £4bn to £5bn in tax revenues, a useful windfall for the public finances.
The French and German governments yesterday issued a joint statement giving their support for an international bank levy, though both countries appear to favour putting the money aside to finance future bailouts of the financial system.
The Germans are already working on laws to introduce their own version of a levy, while Christine Lagarde, the French Finance minister, said yesterday that both countries agreed "fundamentally on the international measure this mechanism should take".
Ms Lagarde said the G20 had not ruled out an alternative approach to a levy on banks, opting for a tax on banking transactions, rather than balance sheets. Such a move has the support of an international coalition of charities, which believe this sort of tax could raise billions of pounds for aid and other good causes. However, the US, Canada and several other countries have already objected to such an approach.
The International Monetary Fund is due to meet later this month to make recommendations on its view of how a bank levy should work before the G20 discusses the tax at a summit in June.
The bank tax: Where the parties stand
Labour's position, as expressed by the Chancellor, is that a new levy on the banking sector is necessary, but that the tax must be introduced by the G20 as a whole, rather than unilaterally.
David Cameron has said he will introduce a new tax on the banks even if no such levy is introduced internationally. The proceeds would be used to repay State support for the banking sector.
Vince Cable, the Liberal Democrat Treasury spokesman, proposes a 10 per cent levy on banks' profits to compensate taxpayers for underwriting the bailout of the financial system.Reuse content