UK backs bank tax over EU industry bailout fund

Tim Wallace
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GEORGE Osborne yesterday fought EU plans for banks to build up multi-billion euro reserves to hold in case they need bailing out in future.

He called the scheme “totally useless,” instead indicating the government should carry on taxing the banks, in exchange for offering support in any future crisis.

And the UK was outvoted by other countries on the EU budget, meaning the Commission will get at least another €7bn (£5.9bn) to pay overdue bills it failed to budget for.

European leaders met yesterday to push ahead on planning for bank collapses, aiming to lay out a strict hierarchy of creditors to avoid any repeat of the chaos that flared up when Cypriot banks ran into trouble.

The aim is for shareholders to lose out first, followed by bondholders, then depositors.

Osborne wants only depositors with less than €100,000 or £85,000 to be fully protected, with firms and savers with uninsured depositors to be bailed in if a bank fails.

But some other leaders want protection for large accounts too – a step Osborne fears would distort the market against investing in bank bonds.

EU leaders also want banks to fund a resolution fund for use in case a bank fails, shifting any costs from the taxpayer onto banks. Currently insured depositors are bailed out by the taxpayer, before the rest of the industry reimburses the government.

“This size of fund would take decades to build up, if it could ever reach the necessary scale,” Osborne said. “Different countries have different banking systems and the UK has set up a bank levy to ensure a proper contribution from the banking sector.”

That levy raises almost £3bn per year into the general taxation pot, and Treasury insiders say that means in any future collapse if the bail in mechanisms were not enough to cover losses then the government could step in.

British banks also oppose any new fund as they fear it would lead to bailouts being seen as an easy option in a failure, rather than a last resort.

Meanwhile the UK lost in the latest budget vote.

“When countries and citizens across Europe are having to make difficult decisions with their budgets, Europe itself should practice what it preaches,” said a Treasury spokesperson. “This amendment was unjustified, which is why Britain opposed it.”