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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 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. |
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 forecasts | Economic forecasts |
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 | |
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. |
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. | |