UK mulling windfall tax on bank bonuses

Britain is still considering some kind of windfall tax on bankers' bonuses but officials said no final decisions had been taken on what Chancellor Alistair Darling would do this week.

A government source told Reuters on Friday that a tax on banks was one revenue-raising option being considered by Darling for his pre-budget report on Wednesday, and weekend newspapers were heavy with speculation on what form this could take.

Darling refused to be drawn on the reports when interviewed by BBC Television on Sunday morning but maintained his tough rhetoric on keeping down bonuses at banks bailed out by the government.

Conservative Party treasury spokesman George Osborne said he could not rule such a measure out.

On Sunday evening the BBC reported that the Treasury was preparing to launch a windfall levy that would raise 1 billion pounds a year over the next two to three years but that this was not "100 percent certain."

A source familiar with the matter told Reuters that there were serious obstacles to a tax on bank profits. "You wouldn't want to do anything that eroded banks' capital" the source said.

A separate source said the problems in imposing such a levy meant that any one-off tax on the banks appeared unlikely. There were fewer obstacles to putting a tax on bonuses, though that was not without problems of its own.

"That seems where we might be moving to" the source said. 

With an election due within six months, Wednesday's pre-budget report may well be the last throw of the dice for Darling and Prime Minister Gordon Brown's Labour Party to narrow the opposition Conservatives' lead in opinion polls.

Government sources told Reuters on Friday there will be a balance of tax rises for the better off and giveaways for the most vulnerable as Labour tries to draw a clear dividing line between it and the Conservatives.

"You want to see the people who benefited most from the boom to pay something back" one source said then. "There will be one very clear story after."

After a decade of prosperity fuelled by cheap borrowing, the British economy crashed spectacularly after the global credit crunch took hold in 2007 and has now been in recession for 18 months, putting nearly a million people out of work.

Public anger has mostly been directed at the banks, many of which have only survived because of billions of pounds of state handouts but are still paying out huge bonuses to their staff.