Britain taxes bank bonuses

December 10, 2009
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, LONDON, Dec 10 – Britain announced a one-off tax on bankers\’ bonuses Wednesday, as it admitted facing a sharper recession and higher state borrowing ahead of elections next year that the government is tipped to lose.

Finance minister Alistair Darling unveiled the controversial levy in a keenly-awaited budget statement to parliament as Britain, stuck in its longest recession on record, gears up for national polls due by mid-2010.

With British Prime Minister Gordon Brown\’s Labour Party expected to lose the upcoming general election to the main-opposition Conservatives, the unveiling of a tax on bankers\’ bonuses was seen as an attempt to win votes.

"The task today is to ensure the recovery and promote long-term growth," Chancellor of the Exchequer Darling said in his mini-budget report, a precursor to the annual 2010-2011 budget due early next year.

The British government on Wednesday fired a broadside at banks, slapping a 50-percent tax rate on bonuses above 25,000 pounds (27,600 euros, 40,700 dollars) to recoup cash spent saving the sector.

Darling said he hoped to claw back more than half a billion pounds of state money with the one-off tax, with the revenue used to help the unemployed.

He added that he was "determined to claw money back for the taxpayer" as he also forecast a far deeper recession than thought.

The Scotsman announced that the British economy was set to shrink 4.75 percent this year compared with a previous official estimate of 3.5 percent.

The economy was expected to grow by 1.0-1.5 percent next year, Darling added, matching his earlier forecast.

Independent consultants the National Institute of Economic and Social Research said annual negative growth of 4.75 percent would be Britain\’s "worst economic performance since 1921."

Britain is the last major world power in recession, after the eurozone, France, Germany, Japan and the United States have all returned to growth after the worst global economic downturn since the 1930s.

Darling added that government borrowing would reach a bigger-than-expected 178 billion pounds in 2009/10.

That compared with his previous estimate that the state\’s public deficit would reach 175 billion pounds during the current fiscal year.

The public finances have been severely stretched by costly banking bailouts, while the recession has ravaged taxation revenues for the Treasury.

In a bid to boost its revenues, the government had already announced that it plans to raise the highest rate of income tax to 50 percent, starting in April.

On Wednesday it added that it would raise the rate of tax levied on income that is used to help fund pensions, and would cap pay increases for public sector workers.

Darling also confirmed the government would stick by plans to reverse last year\’s tax cut on goods and services.

The government slashed VAT (value added tax) to 15.0 percent in December 2008 to help boost consumer spending but will now return as planned to the pre-recession level of 17.5 percent in January.

Darling added that the relief on property tax would expire at the end of the year.

Britons are currently exempt from paying a tax on property purchases, known as stamp duty, for houses and flats costing less than 175,000 pounds. The so-called "stamp duty holiday" expires on December 31.

The Conservatives\’ spokesman on finance, George Osborne, blasted the government over the latest forecasts and accused Darling of delivering a "pre-election report."

"The numbers the chancellor has given us confirm that this prime minister inflicted upon us the deepest and longest recession in our modern history," Osborne said in parliamentary response.

"No-one will ever believe a word they say on the economy again," he added.

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