City fears UK banking levy

ALISTAIR Darling will signal the government’s support for a new tax on banks in this week’s Budget – but the levy will only come into force if he can secure international backing.

The chancellor wants to use the tax system to change the behaviour of banks that engage in “risky” activities, but he will not introduce legislation unless other global financial centres are sure to follow suit.

An aide to Darling yesterday dismissed fears that he would use the Budget to announce a unilateral tax on UK banks, after the Tories upped the ante by saying they were prepared to go it alone if an international consensus could not be reached.

“He has never wanted a unilateral levy,” an aide to Darling said. “He thinks it’s unworkable because the banks will leave the UK, and he thinks financial services are important for the economy.”

Darling’s decision to stick to his guns paints a clear dividing line between the government and the Tories, after David Cameron used a speech at the weekend to announce that he would bring in a bank tax even if rival global financial centres chose not to.

Cameron’s announcement marked a U-turn for the Tories, who had previously said they would only act in tandem with other countries.

Tory officials insisted they were hopeful of building an international consensus, following discussions with global finance ministers and the IMF. And they said the size of any UK levy would depend on the action other countries were taking to ensure that the UK remained competitive.

“We’re not going to do anything that would damage the City’s competitiveness,” one Tory source said yesterday.

But Darling said the Tory plans posed a “a hell of a risk” to jobs in the City.