Chancellor of the Exchequer Alistair Darling is considering a levy on bankers’ bonuses and this week may reverse a tax cut for Britain’s richest households in efforts to win over voters before next year’s election.
Darling yesterday refused to rule out a tax on excessive bonus payments, although he pledged to hold back from measures that would harm Britain’s banks. He said that lowering the inheritance tax for the richest people is no longer a priority for the Pre-Budget Report on Dec. 9.
“We are not going to be held to ransom by people who believe you can pay extremely large bonuses regardless of what’s going on,” Darling told BBC television yesterday. “You have to be fair. You have to be reasonable. But you have got to keep an eye on what the long term effects are.”
Darling and Prime Minister Gordon Brown are seeking to persuade voters that David Cameron’s Conservative Party, which is sticking to a similar inheritance tax plan, is siding with the rich at a time when the country is recovering from the worst economic crisis since World War II. That strategy has helped Brown’s Labour Party erode Cameron’s lead in opinion polls.
Darling said he has not yet seen bonus plans from government-controlled Royal Bank of Scotland Group Plc and that he has the power to veto any proposals he considers excessive. Darling has also said that he is opposed to punitive measures that would damage a bank’s capital position, making it less likely that he will introduce an industry-wide windfall tax.
“It’s not a black and white world,” Darling said.
‘Super-Tax’
The government may impose a one-year windfall tax on British banks that would raise several hundred million pounds, the BBC reported, without attribution. Options may include a “super-tax” on big bonus earners, a larger employers’ national insurance charge or a direct tax on investment banks, the BBC said.
George Osborne, the Conservative lawmaker who shadows Darling in Parliament, told the same program that he “wouldn’t rule out” a charge on excessive individual bonuses if his party defeats Labour in the election, which has to take place before June.
An ICM Research poll for the Sunday Telegraph showed that the Conservatives are on course to obtain a majority of between 20 and 25 seats in the 646-seat House of Commons. A ComRes Ltd. survey Dec. 1 showed that the U.K. may be heading for a so- called hung Parliament, with Cameron leading Brown by 10 percentage points, down 3 points from October.
Darling stepped up the attack yesterday, saying Osborne’s plea to voters to endure tougher times isn’t consistent with tax cuts for the rich.
Privileged Upbringing
A YouGov Plc poll in yesterday’s Sunday Times showed that more than half of the 2,000 people interviewed viewed the Conservatives as the party of the rich. Cameron said Brown had been “spiteful’ in his efforts to tell voters of his privileged upbringing and elite schooling.
“I really can’t believe it would be the first priority of any government, at this time, to give a tax cut to the top 2 percent of estates in this country,” Darling said yesterday.
Darling said in 2007 that he would raise the inheritance tax threshold to 350,000 pounds ($578,000) from 325,000 pounds for single people and to 700,000 pounds from 650,000 pounds for couples, starting April 2010. Cameron’s Conservatives want to abolish the tax for single people with estates below 1 million pounds and for couples with estates below 2 million pounds.
“If the Labour Party wants to say don’t aspire to get on in life, then so be it,” Osborne said. “It’s part of their lurch to the left.”
Cutting Waste
Darling said this week’s budget statement will spell out some detail on how he plans to implement his pledge to reduce the deficit by as much as half over four years. In April, the budget suggested the chancellor would have to find as much as 60 billion pounds to achieve this.
Darling has already announced tax increases that will account for about one-quarter of that amount, and has earmarked about 9 billion pounds by cutting waste in government departments, leaving him the challenge of finding a further 40 billion pounds by reducing government spending.
Darling told the BBC yesterday that he will scrap a 12.4 billion-pound computer program for the National Health Service that is being developed mainly by iSoft Plc. Similar reductions, rather than staff cuts in schools and hospitals, would indicate “the direction of travel” in this week’s report, he said.
“The NHS had quite an expensive IT system and I don’t think we need to go ahead with it now,” he said.
Brown later today will say that the government will slash other non-essential government programs as it seeks to reduce the deficit.
Fragile Economy
The government will “prioritize the necessities and postpone the things we can do without,” and it “will go further than we have ever gone before in streamlining central government,” Brown will say in a speech today.
Brown said on Dec. 4 in his weekly podcast that a plan to move more government services online would save about 400 million pounds a year.
Darling’s view is that the economy is too fragile to take more steps to repair the 175 billion-pound deficit this year, a Treasury official said this week. Darling will challenge the Labour government’s opponents to spell out their plans on what they plan to reduce, the official said.
The pound snapped two weeks of declines against the euro last week as industry reports showed that U.K. services and manufacturing industries expanded in November, indicating that the recovery is taking hold.
Winning Support
Darling’s approach, contrasting with Conservative Party calls to make deeper and faster cuts, won the support of two groups in London yesterday. The National Institute of Economic and Social Research, a London-based research group that counts the Treasury and the Bank of England as clients, said Darling should keep stimulating the economy during the next few months before reducing the deficit.
The British Chambers of Commerce said the government should refrain from cutting the fiscal deficit too quickly as the nation’s economic recovery faces “major risks,”
Darling will lower his forecast for the U.K. economy this year, saying the financial crisis has inflicted far deeper pain than he predicted in April, a government official said Nov. 27. Gross domestic product will fall 4.75 percent in 2009, compared with the 3.5 percent drop forecast seven months ago, the official said. Darling said yesterday that growth in 2010 will be “moderate.”
Treasury officials said last week that Darling will scale back his estimate for the cost of bailing out Britain’s banks to no more than 10 billion pounds, from 50 billion pounds.
The reduction in the sum set aside in the government’s accounts to pay for losses will shave about 40 billion pounds off the Treasury’s debt, now about 792 billion pounds, the officials said.
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