The IMF is pressing for the UK’s banks to pay an annual levy of up to £6 billion (US$9.1 billion), to protect against the impact of future crises and curb the more reckless behavior of the industry, far higher than UK Chancellor of the Exchequer George Osborne’s plan for a £2 billion bailout tax on the sector.
The IMF said the financial crisis had shown that the world’s banking sector was under-taxed and should be subject to a coordinated levy by the G20 nations. In a report looking into the possibility of a global levy, it said a “financial activities tax” on profits and remuneration of financial institutions, “could raise significant revenue and be designed to serve a range of purposes.”
The recommendation was made as the European commission agreed proposals to limit bonuses to bank staff ahead of a vote by the European parliament this week. The proposals, which tie bonuses to profits, are expected to be welcomed by MEPs, who are also likely to sanction heavy restrictions on the activities of hedge funds and private equity firms.
The IMF said a tax covering profits and bonus payments should be added to a levy on banks covering the risk they pose through their activities, but the IMF rejected a “Robin Hood” tax on financial transactions called for by campaigners to pay for aid and development programs.
The report said it believed a lack of transparency around the costs to individual institutions of such a tax would mean it could be passed on to consumers through increased charges.
Labour supported a tax on financial transactions in the election campaign and several leadership contenders, including David Miliband, have added the pledge to their manifestos.
However, a spokesman for Oxfam said that while the IMF report increased the amount banks should pay, it still let them “get away scot free.”
“The IMF is saying their excess profits and bonuses should be taxed, to help pay for the human cost of the crisis they created,” he said. “George Osborne should ramp up his bank tax to £20 billion annually and use this to fight poverty at home and abroad, and tackle climate change. This would be the most popular tax rise in history.”
Plans by Osbourne for a £2 billion surcharge could be in addition to the IMF plan if it reached agreement among the G20 club of rich nations. Bank taxes in France and Germany, though smaller than Britain’s, would also sit alongside those of the IMF, which reported its findings last week after the G20 meeting in Canada.
Ministers are expected to come under intense lobbying to reject the IMF report, which has gone unreported since it was published last week.
Banks in the US and Europe have spent millions of pounds bombarding finance ministries with reasons to reject further taxes on their activities.
Banks have already paid levies as part of the clean-up operation following the 2008 financial crisis. Last year, Britain and France imposed one-off bank bonus taxes. Governments have demanded that loans to banks be repaid with interest.
However, the G20 has failed to coordinate a scheme to protect taxpayers from the risk of further bailouts.
The Treasury said its £2 billion tax was the highest in the EU and set the standard for other nations to follow. It said ministers would examine the £6 billion tax proposed by the IMF, and could include it as an additional levy.
In the report, the IMF said it also favored a “financial stability contribution” linked to a credible and effective resolution mechanism to pay the “direct fiscal costs of financial sector failures.”
IMF Managing Director Dominique Strauss-Kahn said the banks needed to change their behavior and a levy could support regulations in achieving this aim.
The report said: “If properly designed and resourced, resolution mechanisms will avoid governments in the future being forced to bail out institutions deemed too important, too big, or too interconnected to fail.”
The IMF said countries that have blocked moves to tax banks, such as Canada and Brazil, should cooperate with moves to implement “forward looking” levies on their financial sectors.
It said that all G20 countries have experienced a bank-inspired financial crisis in the last 20 years and should cooperate in a forward-looking scheme.
“Many countries may emerge from the crisis with little or no fiscal cost of direct support to the sector. That is a good reason not to impose backward-looking charges, but no reason to dismiss the possibility of putting in place strategies to pay for the future failures from which no country can regard itself as immune,” Strauss-Kahn said.
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