Banks could face 'excess profits tax'

The International Monetary Fund (IMF) is considering plans for an "excess profits tax" on banks worldwide to raise cash in the wake of the financial crisis, it was reported today.

The IMF is expected to recommend the tax to sit alongside a global levy on bank balance sheets as the grip tightens on the sector following the mammoth bail-outs seen during the meltdown, according to The Daily Telegraph.

An excess profits tax would effectively act as a charge on bank cashflow - thought to be a way to raise significant amounts from banks without distorting the financial system.

It is thought the IMF will put forward its tax plans in a report to be published at its spring meetings later this month.

Chancellor Alistair Darling has confirmed his support for a tax on banks in recent weeks, but has stressed the need for an international solution.

The IMF was commissioned by the G20 leading economies last year to look at the potential for global taxes on banks in an effort to prevent future taxpayer-backed rescues.

Initial plans focussed on a so-called Tobin Tax levy on financial transactions, which Prime Minister Gordon Brown also threw his weight behind.

But it is not believed that the IMF is giving serious consideration to a tax on transactions and is now said to be looking at two central tax recommendations - the excess profits tax and a balance sheet tax that has been proposed by US President Barack Obama's administration and already implemented in Sweden.

The excess profits tax would act as a levy on bank profits beyond a certain level, but a balance sheet tax would have the advantage of encouraging banks not to build excessively large stocks of assets - one of the key issues at crisis-hit Royal Bank of Scotland.

Governments worldwide have already slapped a number of one-off taxes on the banking sector as they seek to recoup many billions of pounds of state rescue cash.

The UK introduced a 50% tax on bonuses above £25,000 this year, which has raised around £2 billion so far.

But Mr Darling has been quick to fend off calls for a UK-specific banking tax, warning that it could risk damaging London's standing as a global financial centre.