BUSINESS Secretary Vince Cable has warned British banks they could face a tax on profits if they paid excessive dividends and bonuses and did not promote lending to smaller businesses.
Launching a consultation document on how to get more money flowing to businesses, Cable said that a tax on bank profits was one of the sticks that might be used to boost lending.
Banks have attached more stringent rules to loans as they seek to cushion themselves against future shocks following the global credit crisis.
However, Cable cited the Bank of England’s recent Financial Stability Report which said there was scope for banks to build capital while sustaining lending to the real economy.
“The FSR estimates that if UK banks limited bonus and dividend payouts to pre-crisis and 2009 levels respectively, the major banks could generate around £10bn of additional capital over 2010, which could in turn sustain £50bn in new lending,” said the document, co-authored by Cable’s department and the Treasury.
Cable, a Liberal Democrat in the Conservative-led coalition government, said the spreads earned on banking lending to small businesses were too high.