Ahead of his first Commons bout with Ed Balls this afternoon, George Osborne has moved to shore up a weak flank for the Tories. The Chancellor has announced that the coalition’s bank levy will be increased to £2.5bn this year, raising an extra £800m and allowing him to neutralise the charge that the Tories have handed a de facto tax cut to the banks.
Labour’s 50 per cent tax on bonuses over £25,000 raised £3.5bn last year but this figure falls to £2.3bn if one assumes that the Treasury lost income tax due to the banks paying lower bonuses (NB: this remains a highly speculative assumption). As the FT‘s Jim Pickard suggests, Ed Miliband deserves much of the credit for Osborne’s move. Had he not raised the issue at PMQs last month, it is unlikely the Treasury would have acted so swiftly.
But with the banks due to announce another round of bumper bonus payments this month, Osborne’s announcement does little to bridge the gap between the Tories’ tough rhetoric in opposition and their inaction in power. In 2009, Osborne called for a ban on bonuses at banks that had received any sort of government guarantee (including Barclays). He later promised to block all cash bonuses over £2,000.
Even the recent coalition agreement pledged to tackle “unacceptable bonuses in the financial services sector”. But the government is set to tolerate a £9m payout to the Barclays head Bob Diamond (once accurately described by Peter Mandelson as “the unacceptable face of banking”) and a £2.4m bonus to Stephen Hester, head of the 83 per cent state-owned RBS.
Meanwhile, the IMF, not renowned as a bastion of leftism, has urged Osborne to triple the bank levy to £6m. It calls for the G20 to impose a co-ordinated levy on the undertaxed banking sector to curb industry excesses and guard against “the future failures from which no country can regard itself as immune”.
When even the IMF is calling for higher taxes on the banks, it’s no wonder that the City is celebrating what it regards as another victory over the British state.