Officials told to prepare £8bn taxes on the banks

Whitehall asked to look at new revenue raisers, and possibly VAT rise, as £6bn in new cuts looms
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Officials are working on plans for an £8bn tax on the banks, as the coalition Government prepares a radical emergency Budget next month in order to slash Britain's huge deficit.

The figure is nearly three times higher than originally planned by the Chancellor, George Osborne, and would send a message that drastic action is needed to balance the books. The scale of the tax, although still at the planning stage, will fuel fears that the Government is also planning a VAT hike in the Budget on 22 June .

A larger hit on the unpopular banking industry would lessen public hostility to a VAT increase, which many City experts believe is a foregone conclusion. A VAT rise to 20 per cent has been suggested, although one government adviser said it could be just 19 per cent to lessen the impact.

During the election campaign, all three party leaders said they had "no plans" to raise VAT. Since becoming Prime Minister, David Cameron has repeated this line. But it is likely that the emergency Budget will contain some form of VAT increase.

A source said officials had been asked to come up with taxes to be imposed on banks to raise up to £8bn. A month before the Budget, there is the possibility that the Chancellor could scale back the plans to a lower figure. But the target reflects attempts at harmony between Tory and Lib Dem ministers. Vince Cable, the Lib Dem Business Secretary, has urged higher taxes on the industry that contributed to the global recession.

The Government is also likely to slash spending. The Sunday Times today reports that at at least 300,000 jobs in Whitehall and other parts of the public sector face the axe.

The Budget plans are revealed as David Laws, the Lib Dem Chief Secretary to the Treasury, prepares to announce tomorrow £6bn of cuts in public spending this year. They include £513m in savings from scrapping several quangos – seen as an easy target in scaling back on Whitehall waste.

Also for the chop are ministerial and civil service perks, although this will save relatively little from public spending. Savings will be made from cutting consultancy fees and IT costs; renegotiating contracts with 70 suppliers to the Government; restricting recruitment and reducing property costs. Money will also be raised from scrapping Labour's identity cards scheme, although sources admit that this will save a lot less than the Tory and Lib Dem manifestos claimed.

The new Government had to cope with its first significant leak last night, as two newspapers published details of what they said was an early draft of the Queen's Speech. The Sunday Telegraph and the Sunday Mirror reported that the address, to be delivered by the Queen at the State Opening of Parliament on Tuesday, laid out an 18-month programme of at least 21 parliamentary Bills, starting with school reforms and the scrapping of ID cards within days. Downing Street refused to comment on the reports, and denied ordering a leak inquiry.

In an interview with the Financial Times yesterday, Mr Laws said: "We are moving from an age of plenty to an age of austerity in the public finances." He added he was "mentally prepared for getting a lot of representations from angry people" – which will add to suspicions that a VAT hike is on the cards.

Conservative officials have made clear their intention to target the "quangocracy", the hundreds of agencies, commissions and advisory bodies, often appointed on huge salaries by ministers. The number of quangos rose beyond 1,100 under New Labour, and the cost of keeping them running soared to more than £90bn.

Mr Osborne is understood to have targeted bodies including the National Police Improvement Agency (NPIA), the Youth Justice Board, and the Qualifications and Curriculum Development Agency (QCDA) – as well as some regional development agencies – to be merged, returned to government or done away with altogether. The pledge has been a long-standing Tory objective. Before the 2005 general election, the deregulation spokesman, John Redwood, identified 162 for abolition under a policy of "destroying unwanted and unnecessary quangos and slimming down the rest".

Becta, the schools technology agency and the QCDA are among the educational quangos being targeted by the Treasury. The Infrastructure Planning Commission, created by Labour only seven months ago to streamline Britain's planning system, is expected to be disbanded. The policing minister, Nick Herbert, indicated last week that the NPIA was the first policing quango in the new government's sights.

A government source said of the planned cuts: "These spending savings are essential for economic stability and credibility. Pursuing Labour's reckless plans would have risked a loss of confidence. They have left Britain with Europe's highest budget deficit. No one will ever trust them again with the economy."

The source added that the process of earmarking £6bn in cuts was conducted in just seven days, while "Labour found no savings in 13 years".

Ministers and officials will then work through the summer to introduce the coalition's first comprehensive spending review in the autumn. Any savings identified in the Health and International Development departments and the Ministry of Defence would be "recycled" into the frontline, the source said.

Internal Treasury assessments have uncovered striking examples of "wasteful" spending – including £125m on taxis, £320m on hotels and £70m on flights. In total, the Government spends more than £3bn on travel a year.

Mr Cameron sought to reassure middle-income earners that he would introduce lower taxes, but only in the long term, once the economy had stabilised. Yet in the current climate, say officials, the reality is that radical moves are needed if the coalition, in effect on probation in the eyes of many voters, is to live up to its billing.

Earlier this year, Mr Osborne proposed an annual levy on banks, similar to that introduced by Barack Obama in the US and backed by the International Monetary Fund, to protect against the cost of future bailouts. But Mr Cable was enthusiastic about a further tax on profits proposed by the IMF – known as the Financial Activities Tax or "Fat". While the bank tax proposals are still at the draft stage, the £8bn figure suggests a combination of the two could be on the cards.

The IMF proposals will be discussed at the G20 finance ministers' meeting in South Korea next month. A final agreement on an international bank tax is not expected until September. Mr Osborne could use his Budget to float both taxes, or introduce one unilaterally, said officials.

Yet anti-poverty campaigners urged the Government last night to go further. Max Lawson, a spokesman for the Robin Hood Tax campaign, which is calling for a tax on worldwide financial transactions, said: "To be truly worthy of Robin Hood, any tax on banks should be over £20bn a year, and they can well afford it."

A Treasury aide said: "We do not comment on the Budget in advance."

Changing rooms: Camerons set to move into Downing Street

David Cameron will finally move into Downing Street this week, a fortnight after becoming Prime Minister. Mr Cameron, his wife Samantha, who is five months pregnant, and their two children, Nancy and Elwen, will move into the flat above No 10 temporarily while refurbishment work is carried out in the larger apartment over No 11, previously occupied by Gordon and Sarah Brown. Work will include updating the kitchen and some "general redecoration", said a No 10 spokesman. "Any costs above the standard existing allowance will be met by David and Sam." This suggests Mrs Cameron, who was creative director for Smythson, is perhaps looking for a trendier interior than the staid environment the Browns put up with. The Camerons have remained based at their north Kensington terrace home since polling day, but a growing row over their security arrangements has perhaps forced their hand. The Chancellor, George Osborne, and wife Frances, who have two children, are still dragging their feet: they will not move to Downing Street until after the summer.

Austerity measures: Coalition to announce cuts of £6bn

David Laws, the Liberal Democrat Chief Secretary to the Treasury, will tomorrow announce £6bn of spending cuts, including taking an axe to quangos. But there are other areas that look vulnerable, even if they are not in the first wave of cuts, including Labour's eco-towns and the arts. Tory manifesto pledges on maternity services may also not materialise, while the Queen's Speech, this Tuesday, will set out an austere agenda.

Eco-towns

Gordon Brown's flagship scheme for eco-towns across the UK is set to be scrapped by the coalition. Cash for the second wave of developments, announced earlier this year, has been frozen and the scheme is under review, The IoS has learnt.

The first wave of four eco-towns was announced last year and will go ahead.

But the housing minister, Grant Shapps, said last night: "We will back new eco-developments with broad-based local support that are genuinely sustainable. We will not impose eco-town developments on communities that do not want them."

Mr Shapps's Labour predecessor, John Healey, said: "The shelving of the eco-town programme is a clear signal of what we can expect from Cameron's government. Having feigned concern for the environment and gestured about empowering councils, the Tories' true colours are coming through – and what they said before the election bears little resemblance to decisions they're now taking."

The move is set to anger councils – many Tory-run – that requested eco-town developments and have already spent money on plans.

Jane Merrick

The arts

The music director and chief conductor of the Royal Opera House has warned the coalition government the arts must not be "punished for excellence" in the race to cut the deficit. Antonio Pappano expressed fears that Covent Garden, which receives £28m a year in state subsidy via the Arts Council, would suffer if funding were reduced. It follows Jeremy Hunt's first speech as Culture Secretary last week, in which he paved the way for cuts to the arts, warning that: "The truth is that in the current climate all budgets – large and small – are going to have to be re-examined. There will be in-year cuts in the budget and a tough public spending settlement for the next three years." Mr Pappano told Radio 4's Front Row: "We are obviously thinking of what this is going to mean for us, but we also do not want to be punished for excellence. If we're productive, if we're putting out a good product, we feel that what is available here shouldn't be just thrown away. And the theatre is not just about what goes on stage, it's about a gathering of people, and that is very important."

Jane Merrick

Maternity services

Doubts were raised about the Government's commitment to pregnant women after a manifesto pledge by both parties to prioritise maternity services failed to get a mention in the coalition document.

David Cameron unveiled plans for new maternity networks to offer women "real choice" about where they give birth as part of the party's manifesto in a high-profile event to launch the party's health plans in January.

But despite the pre-election prominence given to maternity care by both parties, the only pledge included in the NHS section was to "stop the centrally dictated closure of maternity units in order to improve access to local services". The Department of Health was unable to provide examples of when this happened under the previous government.

Cathy Warwick, general secretary of the Royal College of Midwives, told The IoS that while she was unsure about what maternity networks were, in a private meeting last week, the Health Secretary had promised to fulfil all the party's manifesto promises.

Nina Lakhani

Queen's speech

A law allowing every school to opt out of the state sector and become an academy will be the coalition government's first bill.

The Queen's Speech on Tuesday will include an Academies Bill, one of three "fast-track" bills to be put to Parliament before the summer as a matter of urgency.

Legislation to scrap identity cards will also go before MPs and peers before the recess.

The legislative programme of the first coalition for 65 years, and covering the next 18 months, will include a Referendum Bill to pave the way for a national poll on the Alternative Vote system, and bills on both banking regulation and police reform.

A government source said: "This bill will provide schools with the freedoms to deliver excellent education in a way they see fit so they can make their own choices and drive up standards."

A second education bill – creating "free schools" run by charities or parents – will be introduced later this year.

Jane Merrick

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