Osborne threatens new tax crackdown on banks

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The Independent Online

The chancellor, George Osborne, is "now examining" further taxes on the UK's banks, apparently in an effort to make them retain more of their earnings, lend more to business and restrain what promises to be another bumper bonus season in the City.

Attending his first IMF meeting in Washington, Mr Osborne also backed calls from the United States for those countries with undervalued exchange rates – implicitly, and most egregiously, China – to bring their currencies into line with market forces.

Talks in the EU about a "financial activities tax", said Mr Osborne, are "gaining pace" and the tone of the response from EU colleagues is "quite encouraging". The "FAT" would be a tax on the banks profits and the bonuses they pay out, rather than the "Tobin tax", a levy on transactions advocated by the "Robin Hood Tax" campaign.

Nonetheless, with the bank levy already announced in the Budget, it represents a radical change in the way the financial services sector is treated by the British government, after years when it was granted a special privileged status in policy-making – symbolised in its long-term exemption from VAT and "light touch" regulation.

With some menace, Mr Osborne added that the banks would do well to "pay close attention" to the threat carried in his speech to the Conservative conference that he would not tolerate them paying lavish bonuses while they continued to fail to lend to small firms. He said they had been warned "publicly and privately" about the Governments' concerns.

The next bank bonus season comes next January and February, and ministers may not relish the contrast between City traders pulling in multi-million pound bonuses and the hardships being endured in the "real economy", not least by those faced with prospect of losing their child benefit, housing benefit and a VAT hike to 20 per cent.

On the most contentious issue facing the IMF's decision makers, Mr Osborne said that currencies needed to be more "market oriented" and "reflect realities". It had been a "hot topic" in Washington". He also urged European nations to pare back their over-representation at the IMF, a long running sore for Brazil, India and China.

At home, Mr Osborne hinted that he would raise no objection to the Bank of England resuming its policy of "quantitative easing", the direct injection of cash into the economy. In the absence of any flexibility on the part of the Treasury to revise its plans to reduce the budget deficit, Mr Osborne has, in effect if not in name, endorsed this as the Government's "Plan B" should the economy slow. Some economists expect the Bank's Monetary Policy Committee to announce a further £50bn injection as early as next month, on top of the £200bn pumped in last year.

Focusing the minds of the central bankers and finance ministers from 187 nations gathered together, the IMF's managing director, Dominique Strauss-Kahn, said the world risked a "lost generation" as a result of the "jobless recovery", something that in turn was a "threat to democracy and even peace".