Page last updated at 23:00 GMT, Monday, 16 November 2009

Lib Dems urge 10% bank profit tax

Workers at Canary Wharf in London
The government says "reckless" bankers could be denied their bonuses

Banks should pay a new 10% tax on their profits in return for the support they received from the taxpayer, according to the Liberal Democrats.

Treasury spokesman Vince Cable told the BBC that banks should have to pay the levy because their businesses have been underwritten by public funds.

The tax would raise some £2bn a year to help pay off the UK's deficit, he said.

But the British Bankers' Association warned that such a move would drive financial services away from the UK.

On Sunday, City minister Lord Myners announced the latest in a series of crackdowns on what he called "reckless" bankers.

He said those who took excessive risks with investments could be stripped of future bonuses, arguing that the measure would make banks "more secure" and mean they would never need state support again.

The Conservatives, meanwhile, have proposed putting a temporary cap of £2,000 on cash bonuses for staff working for High Street banks.

'Casino banking'

Mr Cable said the proposed 10% tax would not be permanent, but would be necessary for several years while the banks were reformed.

We're already seeing people wonder why they should continue to operate here because of the hostility
Angela Knight
British Bankers' Association

Calling the previous risk-taking behaviour by some in the sector "casino banking", he argued the levy would provide "a fair deal" for the taxpayer.

"Business as usual is dangerous," Mr Cable said. "It's the only industry in the UK where the taxpayer automatically underwrites these companies because if they go bust they drag down the economy, and they have this protection.

"Until they are broken up, until the casino-type operations are split off from the ordinary traditional banking, then it's right the banks should pay a fee for the fact that the taxpayer protects them."

Angela Knight, from the British Bankers' Association, said such a tax would have very damaging consequences.

"You won't suddenly see bricks and mortar pick up and shift, but we will see business start to shift," she told the BBC.

"We're already seeing it shift in hedge funds. We're already seeing people wonder why they should continue to operate here because of the hostility.

"I don't think we need to lose more business."

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