UK Considering Bank Profit Supertax

by Amanda Banks, Tax-News.com, London

14 July 2010

Just as Britain’s bankers thought they’d got off lightly in the Chancellor’s June Emergency Budget, the Government has warned the industry that a new ‘supertax’ may be imposed on profits.

A senior Treasury minister confirmed in a speech on Monday that the Treasury is preparing plans for a new ‘financial activity tax’ which would be levied on banks’ bonuses and profits. This new tax is in addition to the tax announced in the budget.

The balance sheet tax announced last month could raise GBP2.5bn per year and it is thought that any new ‘supertax’ would raise similar amounts. The coalition’s Financial Secretary Mark Hoban, who has specific responsibility for the City, said: "A key way of regaining public trust will be by reforming the system of remuneration. We have the opportunity to send a clear message to the public that the banking system now operates in a way that is fair and stable and no longer rewards employees based on short-term performance whilst leaving investors and taxpayers exposed to the long-term risks.”

In a speech to the British Bankers’ Association, he added: “It is better for the industry to lead these changes, but there is a role for the government too. We will explore the costs and benefits of a financial activities tax on profits and remuneration, and we will ask the FSA (Financial Services Authority) to examine further options in the forthcoming review of its remuneration code."

The banking industry is already concerned about the effects severe fiscal measures may have on the City’s ability to remain competitive internationally.

Angela Knight, Head of the British Bankers’ Association said the industry was “...a little more popular than the English football team.” Acknowledging that there was a banking crisis, she went on to add: “If we ignore or pretend that no one else carries responsibility for this except the banks, we kid ourselves. To borrow from a well-known current expression ‘we are all in it together’.”

With the public and private sectors facing heavy job losses and pay freezes, the announcement is seen as a warning to the banks to curb excesses when it comes to pay, bonuses and profits.

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