Banks to escape Budget clampdown

13 April 2012

EIGHT days until the Budget and, as usual, rumours of a windfall tax are in the air. A few years ago, it was the oil companies supposedly in the Chancellor's sights. The year before that, rail rolling stock companies. This time, according to some crystal ball gazers, it will be the banks.

Bob Rothenburg, of accountants Blick Rothenburg, has set the hare running, arguing that Gordon Brown has form - he clobbered the utilities for £5bn in 1997 - and that a bank tax would barely lose him a vote. 'He needs to raise money from somewhere and not many people would shed tears if he raised it from banks,' he said.

The theory has some surface credibility. UK banks have, in the past five weeks, posted record aggregate profits of more than £26bn. Barely a week goes by without evidence that some of these profits have been squeezed unfairly from consumers.

The Chancellor could wield the Cruickshank Review of 2000 as justification. Cruickshank found a complex monopoly did exist, but the Government has never fully implemented his recommendations.

But most tax experts are sceptical. 'I'd put this at the very, very unlikely end of the spectrum,' says John Whiting, tax partner with PricewaterhouseCoopers. The tax would blow the last vestiges of Labour's reputation as a business-friendly party, he adds.

The Tories' windfall tax on the banks in 1981 was explained by the fact that the Government had aggressively lifted interest rates, thus producing windfall profits for them when they failed to pass on the benefit to depositors. Similarly, the utilities tax in 1997 was partly portrayed as the State restoring the balance after privatisation on the cheap.

In both cases, the Government could claim to have created windfall profits and was therefore justified in snatching them back. The same circumstances do not apply to today's banks. Indeed, they are already huge contributors to the Treasury through corporation tax.

Moreover, a bank tax would be far more complicated than the one imposed by ex-Chancellor Geoffrey Howe 23 years ago. Now, UK banks have huge overseas operations and foreign-owned banks are large players in Britain.

Applying a domestic tax fairly would be difficult. And the victims would almost certainly challenge it in the European courts.

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