A bank tax will almost certainly happen

It was eminently predictable that this post-bailed-out-banker-bonus-but-pre-election budget would see a Dutch auction on trying to find new ways to appear to bash bankers.

Once again, the Tories appear to have defied their traditional image and tried to outflank the government on a more punishing agenda for the banks. David Cameron says he would definitely introduce a levy on banks to fund their debt to the taxpayer and create a rainy day fund for future bank crises. The Treasury is in a similar place, but is waiting on international agreements.

There is still an awful lot of political capital to be earned from this relatively new British sport. The Government’s internal polling shows that of all the “fiscal events” (budgets and PBRs) over the last few years, last year’s PBR which saw the introduction of the banker bonus tax, was by far the most popular with the electorate.

It does beg the question as to why on earth it is politically verboten to even consider repeating the bonus tax. That entirely new policy has yielded a billion or two extra for the Treasury coffers, and excellent journalism from my colleague Ben King showed that the supposed exodus of bankers to Switzerland was imaginary . One of Europe’s most senior bank executives laughed off the notion of a migration of a flock of London bankers to Switzerland, incredulously telling a senior cabinet minister: “Have you ever been to Zurich?”.

So I’ve been wondering why Labour or the Conservatives would not, at the very least, toy with the idea of threatening a repeat of the bonus tax if pay excesses continue in 2010. The senior teams around both Mr Darling (and for that matter though to a lesser extent, Mr Osborne) seem completely opposed. The answer lies in a series of assurances the Chancellor had to make in the wake of the bonus tax last December.

The FT ran an intriguing report about JP Morgan’s £1.5bn skyscraper headquarters planned for Canary Wharf’s Riverside South, and a phonecall from its boss Jamie Dimon to the Chancellor. There were no threats from one of the world’s most senior bankers, but it’s my sense that the Chancellor gave a promise that the bonus tax was a one-off that would not be repeated.

So instead on Wednesday we will get a page in the Red Book on the Bank Levy, but, I understand, we won’t get the numbers, merely options on a favoured structure. It’s a new charge on banks that will be sold as an attempt to retrieve every penny of support, and at the same time create a giant rainy day fund so that future bank crises would be industry funded rather than require pay freezes for nurses.

It will have to be internationally coordinated to prevent “regulatory arbitrage” or banks shifting round the world to play the system. As it happens the IMF is already putting the finishing touches to a paper to be released next month on this subject (including an assessment of the related but fundamentally different proposal for a Financial Transactions Tax or Tobin Tax or Robin Hood Tax which are all the same thing, more on that in the coming days).

So the Conservative ‘go-it-alone’ intervention is interesting and has left the banking lobby rather annoyed. It’s not quite go-it-alone of course, because President Obama has announced something similarly unilateral for the US. Nonetheless, in a terse response, the British Bankers’ Association said that reforms needed to be “timely, considered and internationally coordinated so they do not restrict credit to individuals and businesses,” suggesting, in their view, that Mr Cameron’s proposals were not.

I’m not sure that banking shares have factored in that a bank levy in the UK will now, following Cameron’s speech, almost certainly happen, irrespective of who wins the election. It’s worth watching your share screens. And I’m intrigued about what Jamie Dimon and his kind, considering their London skyscrapers, will think.