In 1981, Sir Geoffrey (now Lord) Howe, then Chancellor, took pounds 400m off the clearing banks in a special Budget levy.
The banks were at the time the only part of the economy not suffering from recession. High interest rates the year before had left them with record profits. The Government only reluctantly decided on a windfall tax, which ran against its non-intervention philosophy.
The decision was made after Nigel Lawson, then Financial Secretary to the Treasury, failed to persuade the banks to give the Government back- door Budget help by bearing part of the cost of the export credit scheme.
The levy was devised in the Treasury as a threat to be used only if all else failed, with the intention of persuading the banks to agree to the export credit proposal.
The banks turned down the export credit proposal, though according to Lord Lawson's memoirs they complained later that Sir Jeremy Morse, their representative - chairman of Lloyds Bank - had not told them of the threat that lay behind it.
Sir Jeremy wrote to Margaret Thatcher, complaining about the threat of a windfall tax, which Lord Lawson in his memoirs described as a "singularly pointless exercise, since Margaret had no love for the banks, regarded Morse himself as a neo-Keynesian wet and had been kept fully on side by Geoffrey."
The windfall levy, 2.5 per cent of the banks' non-interest bearing current account deposits, created uproar at first, with disquiet on the Conservative back benches, particularly at the retrospective way in which it was done, and the resignation of Timothy Renton, a parliamentary private secretary.
But the fuss soon died down. The levy in fact took an average of only 19 per cent of the banks' 1981 profits and the City quickly forgot.
However, in the 1982 Budget, the Government said that it was giving further consideration to how the banks could make a "sufficient contribution" to tax.
The result of this exercise emerged two years later, and was far more serious for the banks, though it created less of a row. The Government changed the tax rules on the banks' equipment leasing businesses which cost the big four pounds 1.5bn, just as enormous losses on Third World lending were about to hit the banks, seriously weakening Midland.
There was similarly bad timing with an oil windfall tax. Strong pressure to win more of the benefits of the late 1970s oil-price explosion for the taxpayer led the Government to announce a special tax on North Sea oil and gas in 1981, raising pounds 2.4bn in 1982-83.
But Lord Lawson said: "I felt increasingly the Inland Revenue were overdoing it. There was a danger of killing the goose that laid the golden eggs."
By the 1983 Budget, at Lord Lawson's instigation, the Treasury had agreed a wide-ranging relaxation of oil and gas taxation which paid off a year later with a wave of new exploration.Reuse content