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Darling set to tax bank bonuses Darling set to tax bank bonuses
(39 minutes later)
A one-off tax on bankers' bonuses is expected to form the centrepiece of Alistair Darling's pre-Budget report - the last before the general election.A one-off tax on bankers' bonuses is expected to form the centrepiece of Alistair Darling's pre-Budget report - the last before the general election.
The chancellor is under pressure to explain how he will meet his pledge to halve the deficit over four years by cutting spending or raising taxes. The chancellor is under pressure to explain how he will meet his pledge to halve the deficit over four years - by cutting spending or raising taxes.
The Conservatives say borrowing levels, which could exceed £175bn this year, need to be reduced much more quickly.The Conservatives say borrowing levels, which could exceed £175bn this year, need to be reduced much more quickly.
Support for youth unemployment and environmental measures are also likely.Support for youth unemployment and environmental measures are also likely.
The chancellor's statement, which he will deliver on Wednesday, will set the tone for the economic debate in the run-up to the election - which must be held by next June.The chancellor's statement, which he will deliver on Wednesday, will set the tone for the economic debate in the run-up to the election - which must be held by next June.
The Lib Dems argue neither of the main parties are being honest about the spending challenges facing the next government and the extent of cuts that will be needed.The Lib Dems argue neither of the main parties are being honest about the spending challenges facing the next government and the extent of cuts that will be needed.
'Held to ransom''Held to ransom'
It has been widely reported Mr Darling will announce a one-off tax of 50% or more on "excessive" bonuses paid to some investment bankers in the UK although details of the plan remain unclear.It has been widely reported Mr Darling will announce a one-off tax of 50% or more on "excessive" bonuses paid to some investment bankers in the UK although details of the plan remain unclear.
It is believed the proceeds could be spent on helping youth unemployed and small businesses starved of credit.It is believed the proceeds could be spent on helping youth unemployed and small businesses starved of credit.
WHAT IS THE PRE-BUDGET REPORT? Each year the chancellor delivers two reports to MPs, updating them on the state of the economy and planned fiscal changes.WHAT IS THE PRE-BUDGET REPORT? Each year the chancellor delivers two reports to MPs, updating them on the state of the economy and planned fiscal changes.
The pre-Budget report (PBR) takes place in the autumn with the Budget each Spring.The pre-Budget report (PBR) takes place in the autumn with the Budget each Spring.
This year's PBR will be Mr Darling's third since he became chancellor in June 2007 and, with an election imminent, his most important.This year's PBR will be Mr Darling's third since he became chancellor in June 2007 and, with an election imminent, his most important.
Clues for Labour manifesto? Economic challenges for the parties href="http://www.bbc.co.uk/blogs/nickrobinson/">Nick Robinson class="" href="/2/hi/uk_news/politics/8394261.stm">Clues for Labour manifesto? Economic challenges for the parties
Many banks intend to pay out millions of pounds in bonuses at the end of the year just over a year since the banking system nearly collapsed.Many banks intend to pay out millions of pounds in bonuses at the end of the year just over a year since the banking system nearly collapsed.
After the board of Royal Bank of Scotland, in which the taxpayer has an 80% stake, threatened to resign if blocked from paying bonuses, Mr Darling said he would not be "held to ransom".After the board of Royal Bank of Scotland, in which the taxpayer has an 80% stake, threatened to resign if blocked from paying bonuses, Mr Darling said he would not be "held to ransom".
Economist David Blanchflower, a former member of the Bank of England's Monetary Policy Committee, said such a tax was justified.Economist David Blanchflower, a former member of the Bank of England's Monetary Policy Committee, said such a tax was justified.
"We have to deal with the fact that bonuses have gone too far," he told BBC's Newsnight."We have to deal with the fact that bonuses have gone too far," he told BBC's Newsnight.
"Essentially people don't think it's fair and fairness really matters here. Here is an opportunity, on a once-off basis, for the chancellor to take a tax to those folks and perhaps put it to a purpose that's useful.""Essentially people don't think it's fair and fairness really matters here. Here is an opportunity, on a once-off basis, for the chancellor to take a tax to those folks and perhaps put it to a purpose that's useful."
Industry groups have warned a tax would force some bankers abroad, damaging the UK economy further.Industry groups have warned a tax would force some bankers abroad, damaging the UK economy further.
And the BBC's Economics Editor Stephanie Flanders stressed it would not come close to filling the current hole in the public finances.And the BBC's Economics Editor Stephanie Flanders stressed it would not come close to filling the current hole in the public finances.
Tax measures
No detailed spending plans for after 2010-11 are expected from the chancellor but he may single out areas to be "ring-fenced" from future cuts as the battle lines are drawn before next year's poll.
The BBC's Political Editor Nick Robinson said: "To protect schools, hospitals and the police from spending cuts, Mr Darling will concede that he has to make tough choices elsewhere," says our correspondent.
He might not spell out though this could mean cuts in all other areas of spending of well over 10% over the next three years, he added.
Sources say Mr Darling will speak of the case for fairer taxes.
"He's already announced increases in the top rate of tax and national insurance and it is possible there may be a further rise today," said our correspondent.
Former Chancellor Lord Lawson told the BBC no areas of spending could be ring-fenced if the deficit was to be properly tackled.
"There is always scope for cuts across the board," he said. "You have got to say nothing is sacrosanct."
Economic forecastsEconomic forecasts
Mr Darling will use the statement to update MPs on his latest forecasts for the economy, which has been in recession for more than a year. Mr Darling will update MPs on his latest forecasts for the economy, which has been in recession for more than a year.
He is expected to say the economy will shrink 4.75% this year - a more severe contraction than the 3.5% drop predicted in April - but to stand by forecasts for growth in 2010 of between 1% and 1.5%.He is expected to say the economy will shrink 4.75% this year - a more severe contraction than the 3.5% drop predicted in April - but to stand by forecasts for growth in 2010 of between 1% and 1.5%.
There is always scope for cuts across the board Former Chancellor Lord Lawson There is always scope for cuts across the board Former chancellor Lord Lawson
Many economists also expect him to revise upwards his forecast for borrowing this year from the £175bn predicted in April's Budget.Many economists also expect him to revise upwards his forecast for borrowing this year from the £175bn predicted in April's Budget.
The banking crisis and the recession have had a severe impact on the public finances but ministers say they are committed to halving the budget deficit, the gap between revenue and spending, by 2013.The banking crisis and the recession have had a severe impact on the public finances but ministers say they are committed to halving the budget deficit, the gap between revenue and spending, by 2013.
Tory leader David Cameron believes more prompt action is needed, saying the spiralling deficit is sapping economic confidence and comparing it to "a dark cloud" hanging over the UK.Tory leader David Cameron believes more prompt action is needed, saying the spiralling deficit is sapping economic confidence and comparing it to "a dark cloud" hanging over the UK.
Tax measures A number of new green initiatives are also expected in the report, with tax rebates for electric cars and wind turbines and energy efficiency incentives.
No detailed spending plans for the period after 2010-11 are expected from the chancellor but he may single out areas to be "ring-fenced" from future cuts as the battle lines are drawn before next year's poll.
The BBC's Political Editor Nick Robinson said as ministers sought to protect spending on schools, hospitals and the police, some other areas could potentially face cuts of up to 14% over three years.
Former Chancellor Lord Lawson told the BBC no areas of spending could be ring-fenced if the deficit was to be properly tackled.
"There is always scope for cuts across the board," he said. "You have got to say nothing is sacrosanct."
Mr Darling is said to be considering other tax rises for the better-off, including cutting tax relief on pension contributions for high earners and higher national insurance contributions for the wealthy.
A number of new green initiatives are also expected, with tax rebates for electric cars and wind turbines and energy efficiency incentives.