Q&A: How the proposed bank tax would work

By Edmund Conway, Economics Editor 639PM GMT twenty-two March 2010

Q So what is this new promissory note taxation everyone"s articulate about?

A It depends on who you ask. Last year, the G20 asked the International Monetary Fund to examine the most appropriate approach to levy a taxation on banks but crippling the monetary system. It looks expected to interpretation that the most appropriate process would be an annual levy on a bank"s change sheet.

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Q A levy on a bank"s change sheet. How does that work?

A The thought would be to assign banks a small fee, probably less than 0.1pc, on their change sheets. If a bank has �100bn of resources in the change piece and the taxation is 0.05pc, the bank would compensate �50m in taxes a year. There are questions about either you"d assign the levy on resources or liabilities, and what you"d do with the income but the aim is to daunt banks to set up up large change sheets, as did Royal Bank of Scotland, whose resources at their rise were homogeneous to Germany"s mercantile output.

Q So what are the Government and the Tories proposing?

A Well, in minute terms, not much. Both have come out in foster of a levy of this sort but but naming the rate, the volume it could design to lift or the accurate piece of the change piece it would target.

Q But they"re both on the same page are they?

A Predictably not. The Treasury distinguishes itself by stressing that it wants the deduction of the taxation to go true in to the Exchequer"s coffers rather than in to a word account that would yield for destiny bank bail-outs. The Tories have pronounced that they would be peaceful to deliver the taxation unilaterally, rather than watchful for the G20 to determine on an general plan.

Q So, are these flattering key differences?

A Not really. For one thing, both are expected to put any deduction towards profitable off the necessity rather than formulating an word fund, that would potentially inspire destiny risk-taking by banks (AKA dignified hazard). Moreover, if the Tories are inaugurated and have an puncture Budget, the IMF will have already reported on the options and the G20 will probably have motionless on an general framework.

Q Are there any alternative options?

A The alternative main contender for a bank taxation is the supposed Tobin tax, well known otherwise as a exchange taxation or, according to campaigners, a "Robin Hood" tax. This would be a really small price to be charged on transactions. The Liberal Democrats are in foster of this idea, nonetheless the IMF is expected to advise in the inform subsequent month that it would means some-more repairs to the economy than the alternatives. Still, the thought at the back of the taxation is not merely to lift income but to daunt banks from suppositional transactions.