Pre-Budget report to reveal 'supertax' on bank bonuses

Published on Wednesday 9 December 2009 09:24

ALISTAIR DARLING was today set to announce a major raid on the City as well as plans to harvest more tax from the rest of the public as he delivered his crunch pre-Budget Report.

The Chancellor was expected to unveil a series of measures designed to raise revenue as he admitted the Government's finances were in even worse condition than previously thought.

The centrepiece of the package was expected to be the widely-leaked proposals for a one-off windfall "supertax" on banks' bonus pools, intended to recoup some of the billions of pounds spent shoring up the financial system.

Instead of taxing individual bankers, the Chancellor is expected to opt for the legally safer approach of taxing the pools used by the banks to pay the bonuses.

Royal Bank of Scotland is one of those expected to be hardest hit by the move on bonuses.

There was also speculation the Government would risk further escalating tensions with the City by publishing a document outlining the case for a new tax on all transactions.

The ideas drew a response from the president of Barclays, Bob Diamond, who suggested they could lead to an exodus of talent.

Mr Diamond said: "Both financial capital and human capital are extremely mobile. In terms of compensation it's great politics and it's great media. We don't feel that (a tax on bankers' bonuses) is supported by the principles that were adopted (by the G20)."

Business Secretary Lord Mandelson said "nobody" wanted to drive banks and bankers away from the City of London.

He said: "They are important for our economy, they are important in the tax revenues they generate for the Exchequer but, on the other hand, we are seeing, in some respects, a return to the short-term bonus culture that got us into so much trouble in the past.

"Therefore, I think it is reasonable for the Chancellor to deliver a message to the banks."

Alongside moves to hammer bankers, Mr Darling was expected to confirm that economic performance has been worse than thought this year and public borrowing would rise even higher than the previous estimate of 175 billion.

And he was also expected to signal "real cuts" ahead in many areas of government spending.

But protection is likely to be offered to budgets for schools, hospitals and police.

On tax, personal allowances were expected to be frozen, bringing thousands more into the higher rate of tax, and there was speculation he might signal future rises in VAT.

He was expected to postpone a scheduled increase in the inheritance tax threshold from 325,000 to 350,000.

And there were predictions that employer, employee and self-employed national insurance contributions of 0.5 percentage points scheduled for April 2011 could be brought forward to 2010.

There was also speculation about better news for green taxpayers, with possible tax rebates on electric cars, home wind turbines and solar panels.