10% profit tax needed, say Lib Dems

The City

UK political party the Liberal Democrats have called for banks to have to pay a new 10 percent tax on their profits in return for the bailout funds they received from the taxpayer when the crisis hit.

According Britain's third biggest political party, banks should have to pay the sum because their businesses have been underwritten by public funds. It is hoped the tax will raise somewhere in the region of GBP£2 billion (2.25 billion euros) a year to aid in paying off UK debt.

Suffering

However, according to the British Bankers' Association, such a move would only be detrimental to the recovery of the UK's financial services industry - instead driving competition away from UK shores.

Instead, regulators are attempting to crack down on "reckless bankers," with City minister Lord Myners having announced the latest moves to prevent banks from having to take excessive risks in the future.

As part of the fight, Lord Myners announced that those who have taken such risks in the past could be stripped of future bonuses, pushing for the measure to make financial services institutions "more secure" - thereby suggesting that financial institutions would be able to avoid state support again in the future.

Lib Dems

For the Lib Dems, the proposed 10 percent tax is the answer. The party have argued that the levy would not be a permanent measure, but would be essential for several years while the economy stabilised.

In a suitably predictable political move, the call from Lib Dems comes after the Conservative party already proposed putting a temporary cap of GBP£2000 (2250 euros) on cash bonuses for staff working for high street banks.

Calling the previous risk-taking behaviour by some in the sector "casino banking", the Lib Dems warn that until banks are broken up and "the casino-type operations are split off from the ordinary traditional banking" it is fair to expect banks to pay a fee for the fact that taxpayers are protecting them.

Angela Knight, spokeswoman for the British Bankers' Association, however, suggests that such a tax would have "very damaging consequences."

She told the BBC: "You won't suddenly see bricks and mortar pick up and shift, but we will see business start to shift. We're already seeing it shift in hedge funds. We're already seeing people wonder why they should continue to operate here because of the hostility. We don't need to lose more business."

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