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Darling to unveil bank bonus tax Darling to unveil bank bonus tax
(30 minutes later)
A tax on bankers' bonuses is expected to form the centrepiece of Alistair Darling's pre-Budget report - the last before the general election.A tax on bankers' bonuses is expected to form the centrepiece of Alistair Darling's pre-Budget report - the last before the general election.
Banks will face a 50% levy on bonuses above a level of about £20,000, the BBC's Robert Peston understands. Banks may face a one-off 50% levy on bonuses above a level which could be as low as £10,000, the BBC's business editor Robert Peston understands.
The move is designed to deter the payment of big bonuses rather than raise revenue, Peston added. It is intended to deter big bonuses rather than raise revenue, he said.
The chancellor is under pressure to explain how he will meet his pledge to halve the deficit over four years. The Tories accused Labour of "chasing headlines" by "bashing the bankers" to divert attention from the economy.
The Conservatives say borrowing levels, which could exceed £175bn this year, need to be reduced much more quickly. GUIDE TO 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.
You can watch BBC TWO's pre-Budget report special - together with text commentary and expert analysis and reaction on the BBC website from 1130 to 1430 GMTYou can watch BBC TWO's pre-Budget report special - together with text commentary and expert analysis and reaction on the BBC website from 1130 to 1430 GMT
Economic challenges for the parties Nick Robinson's viewEconomic challenges for the parties Nick Robinson's view
Shadow business secretary Ken Clarke told Sky News: "It is all tinsel, really, because they will pay themselves in different ways."
He said Mr Darling should be concentrating on "serious" issues instead such as "how to get the country out of the deepest recession we have ever had and how do you deal with this mountain of debt".
Business secretary Lord Mandelson denied the government just wanted to "teach the banks a lesson" with its new one-off bonus tax.
He told BBC Breakfast: "We want the banks to build up the capital on their balance sheets, we want them to become profitable again, we want them to function normally because the rest of the economy depends on that.
"But, equally, they do have to understand that people will be very disconcerted, and disapproving, to see a return to the excesses, the bonus culture that we have seen in the past."
Youth unemployment
Explaining how the bank bonus tax would work, Robert Peston said: "The chancellor will say that if banks pay bonuses to individual bankers over a specified fairly low level - perhaps £10,000 - that will trigger a special one-year-only tax for those banks.
"The tax payable will be calculated by adding together all those big bonuses and then levying a charge on the aggregated sum of those big bonuses.
"The tax rate for the bank on that pool of bonuses would be more than 50%."
The tax rate for the bank on that pool of bonuses would be more than 50% Robert Peston, BBC Business Editor Peston: How tax will work
Peston said the effect of the new tax, will is expected to apply to all UK banks operating in the UK including branches of foreign banks, would be to make it "very expensive" for banks to pay bonuses.
The chancellor is under pressure to explain how he will meet his pledge to halve the deficit over four years in his pre-Budget report.
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 at 1230 GMT, 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 at 1230 GMT, 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.
Many banks intend to pay out millions of pounds in bonuses just over a year since the huge taxpayer-funded bail-out of the banking system.
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.
"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."
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.
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".
He might not spell out that this could mean cuts in all other areas of spending of well over 10% over the next three years, he added.
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
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 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 Clues for Labour manifesto? Send us your comments
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.
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.