CBI chief to warn against tax on banks

CBI RICHARD Lambert, outgoing director general of the CBI, is tomorrow expected to warn the government against imposing tax and regulatory burdens on the banks that would harm Britain's competitiveness.

• Richard Lambert

Lambert, who steps down in the new year, will deliver his last major speech on banking at the helm of the employers' group and could pitch himself into a new conflict with the coalition and the European Union over what needs to be done to repair the financial system.

He is expected to demand a more rational debate, void of the rhetoric emerging from ministers over the new rules advocated by Brussels.

As such he could set himself squarely against Business Secretary Vince Cable, who is the most vocal critic of the banks and has called for tougher action on top of the proposed bank levy.

At the Liberal Democrat conference, Cable said it was necessary to "shine a harsh light" on the finance system and punish banks which pay large bonuses.

His comments were interpreted as "anti-capitalist" and caused alarm in business circles, even among those who had supported calls for the financial system to be reformed.

Lambert questioned Cable's use of "emotional" language and may return to the theme during his speech in London tomorrow.

The CBI boss, a former member of the Bank of England's Monetary Policy Committee, has taken a more conciliatory view of the banking system, believing it is more important to ensure the banks provide the finance required by businesses.

Chancellor George Osborne said during a visit to the International Monetary Fund in Washington this weekend that he could impose further taxes on the banks to force them to retain more of their earnings, thus allowing them to lend more to businesses. He would also like to see more restraint exercised on bonuses. A recent report forecast that banks and other City institutions will pay out 7 billion in bonuses this year.

Sources say Lambert is concerned primarily about maintaining London's and Britain's competitive edge and would be anxious about over-burdening the financial system with tax and red tape.

He is likely to ask questions of the Independent Commission on Banking, which he previously described as leaving a "cloud of uncertainty" over the sector.

The commission was established by the coalition to examine the future structure of the system and will consider issues such as competition and splitting up the banks.

Lambert has been keen to see an easing of regulation that may impact on competitiveness and is likely to address the latest initiatives emerging from Brussels, where the European Union is considering a financial activities tax. Development of the so-called FAT tax is said to be gathering pace. It would be a tax on bank profits and the bonuses they pay out. This appears to be the preferred option rather than a tax on transactions, known as the Robin Hood tax.

The European Commission has also unveiled caps on the amount banks can pay in cash. The move aims to stamp out reckless risk, but others warn it may force banks to flee the EU.