Andrew Grice: Why the City need not fear a windfall tax

"Get real – Darling warns the bankers," said a front-page headline in The Independent in July. In an interview, the Chancellor, Alistair Darling, expressed concern that the bonus culture was creeping back in the City and threatened a law to rein them in.

In recent days, there has been another crop of headlines, this time suggesting that there might be a windfall tax on banks that hand out excessive bonuses. Plus ça change....

Political pressure is mounting on the Government to act as another season of bumper bonuses is on the cards. The last thing ministers need is a slew of headlines about that. Taxpayers have bailed out the banks and would not understand if the Government allowed them to carry on as though that had not happened. So the issue is toxic for Labour.

"These are unearned profits," said Gavin Hayes, general secretary of the democratic left pressure group Compass, which wants a windfall tax. "The Government needs to take a much more interventionist approach and stop pussy-footing around. Even Margaret Thatcher imposed a windfall levy on the high-street banks in 1981."

Many Labour MPs would welcome a one-off raid on the banks in next month's pre-Budget report, saying it would be very popular with voters. The Tories have not ruled one out, if banks do not put their own house in order. The Liberal Democrats are looking at a more permanent levy so taxpayers get some return on their enforced investment.

But MPs shouldn't hold their breath. Mr Darling will almost certainly disappoint them. Treasury insiders insist that the recent headlines had nothing to do with them. Perhaps a bright spark elsewhere in the government machine was trying to fire a warning shot at the banks.

The Chancellor is playing down expectations that he knows he would struggle to fulfil. He would impose a windfall tax if it would be effective, and he is not convinced. Despite the political attractions, he believes it is wrong to hit banks' balance sheets at a time when they need to be rebuilt. He hopes that excessive bonuses will be curbed by the measures agreed by last month's G20 summit in Pittsburgh, which would allow unjustified bonuses to be clawed back after three years.

A Bill in the Queen's Speech next month will give the Financial Services Authority more powers over the banks. Although Mr Darling does not rule out further unilateral action by Britain, he knows that businesses who employ a total of one million people here would threaten to move abroad if the Government were to go it alone. They always do.

A windfall tax? Don't bank on it.