Darling Weighs Bonus Levy, Scrapping Tax Cut for Rich

By Gonzalo Vina

Dec. 7 (Bloomberg) -- Chancellor of the Exchequer Alistair Darling is considering a levy on bankers’ bonuses and this week may reverse a tax cut for Britain’s richest households in efforts to win over voters before next year’s election.

Darling yesterday refused to rule out a tax on excessive bonus payments, although he pledged to hold back from measures that would harm Britain’s banks. He said that lowering the inheritance tax for the richest people is no longer a priority for the pre-budget report on Dec. 9.

“We are not going to be held to ransom by people who believe you can pay extremely large bonuses regardless of what’s going on,” Darling told BBC television yesterday. “You have to be fair. You have to be reasonable. But you have got to keep an eye on what the long-term effects are.”

Darling and Prime Minister Gordon Brown are seeking to persuade voters that David Cameron’s Conservative Party, which is sticking to a similar inheritance tax plan, is siding with the rich at a time when the country is recovering from the worst economic crisis since World War II. That strategy has helped Brown’s Labour Party erode Cameron’s lead in opinion polls.

Bank shares fell in London trading today. Royal Bank of Scotland Group Plc slid 2 percent to 33.95 pence and Lloyds Banking Group Plc lost 2.3 percent to 54.73 pence. The FTSE 350 Banks Index declined 1.4 percent, the biggest drop in more than a week.

Pound Weakens

The pound weakened against the dollar and the euro. The British currency dropped to $1.6386 as of 10:33 a.m. in London, from $1.6474 at the end of last week. It weakened to 90.47 pence per euro, from 90.18 pence.

Darling said he has not yet seen bonus plans from government-controlled Royal Bank of Scotland and that he has the power to veto any proposals he considers excessive. Darling has also said that he is opposed to punitive measures that would damage a bank’s capital position, making it less likely that he will introduce an industry-wide windfall tax.

“It’s not a black and white world,” Darling said.

The government may impose a one-year windfall tax on British banks that would raise several hundred million pounds, the BBC reported, without attribution. Options may include a “super-tax” on big bonus earners, a larger employers’ national insurance charge or a direct tax on investment banks, the BBC said.

Conservative Plans

George Osborne, the Conservative lawmaker who shadows Darling in Parliament, told the same program that he “wouldn’t rule out” a charge on excessive individual bonuses if his party defeats Labour in the election, which has to take place before June.

An ICM Research poll for the Sunday Telegraph showed that the Conservatives are on course to obtain a majority of between 20 and 25 seats in the 646-seat House of Commons. A ComRes Ltd. survey Dec. 1 showed that the U.K. may be heading for a hung Parliament where no party has an outright majority, with Cameron leading Brown by 10 percentage points, down 3 points from October.

Darling stepped up the attack yesterday, saying Osborne’s plea to voters to endure tougher times isn’t consistent with tax cuts for the rich.

A YouGov Plc poll in yesterday’s Sunday Times showed that more than half of the 2,000 people interviewed viewed the Conservatives as the party of the rich. Cameron said Brown had been “spiteful’ in his efforts to tell voters of his privileged upbringing and elite schooling.

Not ‘First Priority’

“I really can’t believe it would be the first priority of any government, at this time, to give a tax cut to the top 2 percent of estates in this country,” Darling said yesterday.

Darling said in 2007 that he would raise the inheritance tax threshold to 350,000 pounds ($578,000) from 325,000 pounds for single people and to 700,000 pounds from 650,000 pounds for couples, starting April 2010. Cameron’s Conservatives want to abolish the tax for single people with estates below 1 million pounds and for couples with estates below 2 million pounds.

“If the Labour Party wants to say don’t aspire to get on in life, then so be it,” Osborne said. “It’s part of their lurch to the left.”

Darling said this week’s pre-budget statement will spell out some detail on how he plans to implement his pledge to reduce the deficit by as much as half over four years. In the April budget, the Treasury forecast a shortfall of 175 billion pounds in the year through March 2010, or 12.4 percent of gross domestic product -- the largest in British postwar history.

Cost Cutting

Darling told the BBC yesterday that he will scrap a 12.4 billion-pound computer program for the National Health Service that is being developed mainly by iSoft Plc. Similar reductions, rather than staff cuts in schools and hospitals, would indicate “the direction of travel” in this week’s report, he said.

“The NHS had quite an expensive IT system and I don’t think we need to go ahead with it now,” he said.

Brown said today the government will reduce spending by more than 12 billion pounds over the next four years through efficiency gains. Ministers had found 3 billion pounds of new savings since April, including 1.3 billion pounds by “streamlining” central government, he said in a speech in London.

Brown said on Dec. 4 in his weekly podcast that a plan to move more government services online would save about 400 million pounds a year.

Today, he promised to reduce the pay bill for senior civil servants by 20 percent over the next three years, and said that more civil service jobs will be moved from London and the southeast of England to parts of the country where living costs are lower. The government will halve spending on consultants and cut its marketing budget by a quarter, Brown said.

To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net