Accountancy Rules Change: £900m blow to banks spread over 10 years

The banking industry breathed a sigh of relief yesterday after Gordon Brown chose to spread an expected £900m hit from new accounting rules over a decade.

It had been feared that the Chancellor was planning to sweep the full amount into Treasury coffers in one go, which would have sharply dented earnings across the sector in any single year. One banking analyst said: "This looks sensible, but let's wait and see. As with all these things, the devil's in the detail."

Changes to international accounting rules mean banks can claim much less tax relief on bad-debt charges. Talks between banks, the Treasury and the Inland Revenue over exactly how much relief should be given have been running for two years.

Under the old tax regime, banks took two types of bad-debt charge: general provisions against possible losses and specific provisions against losses that had been incurred.

The specific provisions received tax relief, while the general did not. Under the new rules, banks take impairment charges and make no distinction between general and specific items.

The change has fuelled confusion and frustration over tax treatment for impairments, which have been on the rise as higher utility bills and mortgage payments mean more Britons are failing to meet repayments.

Opposition politicians accuse the Government of trying to introduce a stealth tax on banks using the new accounting rules as an excuse. The banks' hefty profits have long been viewed as a possible source of extra revenue by the Government.