UK govt new front in battle with finance industry
LONDON: UK premier Gordon Brown is planning to escalate his party’s growing war with the City of London (the UK’s financial services industry) by threatening two more levies on banks in addition to the tax on bonuses due to be announced today by UK finance minister Alistair Darling.
Darling will use today’s pre-budget report to impose a one-off tax on this year’s bonus round, but the prime minister’s office will further step up the squeeze on the City tomorrow with a 60-page report making the case for a so-called transactions tax on all City trading, and an insurance scheme to stop taxpayers being forced to foot the bill for any future
banking crises. Leaked plans for the bonus tax have already attracted fierce criticism in the City, where traders will be scrutinising the pre-budget report for signs of weakness in Britain’s public finances after renewed jitters in the market yesterday.
In today’s speech, Darling will signal “real cuts” across the UK’s civil service if Labour is re-elected in the election early next year, promising that only the budgets for schools, hospitals and
police will be protected from his determination to meet a commitment to halve the UK’s GBP180 billion deficit by 2014.
In what is seen as one of the last big political landmarks before the election, Darling is locked in a balancing act trying to show he can protect cherished frontline services, and yet cut the deficit and assuage the markets.
He hopes to inject credibility into his promise to cut the deficit by publishing a bill binding him to halving the deficit within four years. He will also spell out for the first time the degree to which the schools, hospitals and police budgets will be protected when he reveals how extra spending in these areas will be funded by measures including higher taxes and efficiency savings.
Nevertheless, Darling will face Opposition Conservative (Tory) allegations of dangerously deferring the necessary tough medicine when he reveals he will not start to cut spending next year, instead sticking to published plans for 2010-2011 to boost spending by GBP30bn to GBP700 billion.
Darling’s tax on bankers’ bonuses to be announced today may not in itself raise significant sums. But the government’s new-found appetite for challenging the City is winning enthusiastic support from Labour MPs, and the decision to follow this up immediately with the threat of two further taxes is hugely symbolic.
The prime minister and finance minister are determined to keep up their populist attack on high-rolling bankers, who have infuriated the government by rapidly returning to business-as-usual.
The Treasury-backed report due to be published tomorrow will suggest international financiers are making excessive profits, and should be forced to contribute more to society.
The report will also flesh out ideas for ensuring banks meet the costs of future crises. Brown believes the rescues of the past 18 months show that any government would be forced to bail out sprawling financial institutions such as Royal Bank of Scotland, or face complete economic collapse. Therefore, such banks should pay up front for the insurance they in effect receive from the state, or devise plans that will ensure their shareholders foot the bill.
