GEORGE Osborne is prepared to introduce a new tax on banks’ profits and pay, which is likely to be implemented if they fail to show restraint in the forthcoming bonus round.
The chancellor told delegates at the Tory party conference in Birmingham that he wanted to see “genuine talent rewarded”, but warned the government would pursue another levy if banks pay out politically unpalatable bonuses.
He said: “I want Britain to be the home of successful, competitive and stable financial services. But let me make this clear: we will not allow money to flow unimpeded out of those banks into huge bonuses, if that means money is not flowing out in credit to the small businesses who did nothing to cause this crash and suffered most in it.”
Aides to the chancellor said any new levy on the banks would take the form of a so-called financial activities tax (FAT), essentially a tax on profits and remuneration, which was first mooted by the International Monetary Fund (IMF).
Previously, the government has said it would only introduce an FAT if it could secure international agreement, due to fears that banks could relocate overseas to avoid the levy. But Treasury officials think an FAT could be brought in without a broad international agreement, as long as there is an accord in a handful of countries, like France, Germany and the US.
The chancellor is planning to discuss the FAT with other finance ministers at international meetings like the G20 to gauge support.
Even if nations like Hong Kong, which is fast-becoming a major international banking centre, refuse to sign up to the FAT, the government is prepared to press ahead with the plans.
Treasury officials have been emboldened by the level of global consensus on the levy on balance sheets, which is being adopted in the UK, US, France and Germany.
According to one Treasury aide, this limited arc of support constitutes an “international agreement”, even though emerging banking centres like Hong Kong have refused to sign up. “We believe the degree of international co-operation combined with the level at which it is set is enough to stop banks leaving the UK,” he said.