UK Conservatives back US-style bank tax plan

Britain's opposition Conservatives would introduce a unilateral tax on banks similar to that planned by US President Barack Obama if they win the upcoming election, leader David Cameron said on Saturday.

Prime Minister Gordon Brown's Labour government is expected to outline in next Wednesday's budget a global tax on investment banks as its preferred option for clawing back some of the billions of dollars of state funds swallowed up by the banking sector bailout.

The budget is expected to rule out creating an insurance fund against future failure.

The government has said any levy on banks would need international agreement to prevent an exodus from the City of London, but the Conservatives said they would push ahead without support from other countries.

"A Conservative government will introduce a new bank levy to pay back taxpayers for the support they gave and to protect them in the future," said Cameron, whose party is leading opinion polls before a national election expected in May.

"It won't be popular in every part of the City. But I believe it's fair and it's necessary," he said in a speech in south London.

Cameron said the plans would echo those of Obama, who put forward proposals in January for a 0.15% tax on the liabilities of big financial institutions.

The level at which a British tax was set would depend on the scale of international agreement, if any, for a levy, a Conservative spokesman said.

"We had the biggest bank bailout in the world. We can't just carry on as if nothing happened," Cameron said. "In America, President Obama has said he will get taxpayers back every cent they put in. Why should it be any different here?"

INTERNATIONAL ARRANGEMENTS "ESSENTIAL"

The British Bankers' Association said taxpayers money used to stabilise the banking industry was on track to be paid back and that it would work "on issues around a last resort intervention fund" to prevent future problems.

"But UK banks believe the best course is to wait for the outcome of next month's IMF proposals as the industry operates across borders and so international arrangements are essential," the BBA said in a statement.

IMF chief Dominique Strauss-Kahn will present to the G20 group of leading countries his proposals next month on how to make banks rather than taxpayers pay for bailouts.

Both Britain's major parties are looking at how to recover money from financial institutions that benefited from the huge bailouts during the financial crisis which struck in 2008. Britain was forced to use taxpayers' money to buy large stakes in both RBS and Lloyds.

Labour said it was committed to an international deal.

"We are part of a global banking system. That's why the Chancellor of the Exchequer (finance minister Alistair Darling) has been leading international negotiations along with the prime minister for coordinated international action," the party's election coordinator Douglas Alexander told Sky News.

Darling is also expected to say in the March 24 budget that money raised by any levy should go to national governments, instead of into an insurance scheme.

This would discourage banks from taking future risks and also help Britain to address its record budget deficit. "The banks may prefer an insurance fund. But in many ways it would be a free pass, entitling them to free help when things go wrong and encouraging them to take risks," a government official said.

Options for the levy include taxing a bank's liabilities, measuring risk-weighted assets or trying to tailor a scheme for individual institutions.