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FAT or FTT, which option will the chancellor go for?

FAT or FTT, which option will the chancellor go for?

Persuading the banks to lend more to businesses is still high on the agenda for George Osborne and he is now considering imposing additional taxes on them.

The chancellor said that the EU was talking about a ‘financial activities tax’ which would tax profits and bonuses rather than transactions. The Committee of European Banking Supervisors is currently considering a multiple salary cap on bonuses which would restrict cash bonuses to a maximum of 30% of salary and defer 40% of that bonus.

Osborne has already announced a bank levy and by imposing additional taxes the new government is showing that our financial institutions and business bank accounts are no longer going to receive preferential treatment.

During the Conservative party conference, the chancellor informed the banks that he would not tolerate them paying exorbitant bonuses when small businesses were struggling to obtain finance.

The first two months of next year are bank bonus season and the prospect of City traders raking in massive bonuses will not be welcomed by the ordinary man on the street who will be paying more VAT and possibly losing housing and child benefit.

However, the CBI is worried that the EU proposals will hurt households and businesses and cause the banks to relocate. The Confederation’s director of competitive markets, Matthew Fell, said that taxing financial services companies would not make the sector more resilient or encourage lending to companies. In fact, he believes it would have the opposite effect.

The financial services sector is such an important part of our economy and Fell explained that the International Monetary Fund has already rejected a global financial transactions tax because the burden would ultimately fall on households and businesses. But, imposing a European ‘FAT’ could encourage financial services companies to relocate outside the Union; a move that would hit undoubtedly reduce London’s importance as a world-wide financial centre, Fell concluded.

Dominique Strauss-Kahn, chief of the IMF, is concerned that without closer supervision, the banks will return to ‘business as usual’ which could lead to a further economic crisis.

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Image: Decisions by katietower

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