Vince Cable, the UK Liberal Democrat Shadow Chancellor, has proposed a new levy on bank profits, in recompense for the explicit guarantee the banks receive from the state.
As the banking sector is unique, he said, in having the taxpayer acting as a safety net, he has proposed a tax on bank profits at a rate of 10%. All of the estimated revenue of GBP2bn (USD3.35bn) that could be raised next year, should such a tax be imposed, would be allocated towards tackling the country’s budget deficit.
“One trillion pounds worth of taxpayer support has gone into keeping the British banking industry afloat,” Cable explained. “We must find a way to split the banks so that the British public no longer props up ‘casino’ banking.”
“Meanwhile, it is only right for the taxpayer to get a fair deal for the guarantee that they provide to the banking industry. A 10% levy on bank profits would be used to pay down the structural deficit that they are partly responsible for creating.”
Further details given in a press release confirmed that the new tax would be supplementary to corporation tax. However, unlike corporation tax, it would be payable on all profits made within the tax year, without the deduction of previous years’ losses.
Had this levy been in place prior to the financial crisis, the Liberal Democrats say it would have raised approximately GBP4bn per year. As profitability has fallen since the crisis and further write downs are to be expected from some banks, the current likely yield from this levy would be around GBP2bn next year.
All banks that are incorporated in the UK would pay the levy. While the party acknowledges that this proposal alone is not enough to tackle bonuses within the banking sector, they would expect this levy, as an additional cost to banks, to reduce the size of bonus pools and thus impact their capacity to pay out large bonuses. It would be charged until structural reforms in the banking sector were completed.
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