Calls Grow For Tax On Profits Of UK Banks

by Robert Lee, Tax-News.com, London

20 October 2009

As a reaction to the return of large profits to UK banks, and especially to the proposals for continued large bonuses, there have been calls for increased taxes on the bank sector.

Concern has been expressed from many quarters that the large bonuses being reported show that the remuneration culture within the financial system remains unchanged despite the short period since it was rescued. It is felt that if the banks were unable to take effective voluntary action on “excessive remuneration,” additional taxation would be an effective alternative option.

Whilst it is recognized that the banking system as a whole still faces a need for replacement capital, there is also general feeling that some of the increased profits should now be extracted as compensation for the taxpayers’ bail-out. One option could be a one-off windfall tax on profits, while another could be a restriction to the offsetting of losses against corporation tax due on profits in the future.

There have been calls for the Chancellor, Alistair Darling, to announce such tax measures in the Pre-Budget Report, due next month. Any action could be expected to affect all UK banks, not only those which were given access to government capital or funds, and would have a precedent in the windfall tax on the banks imposed in 1981 by the Thatcher government.

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