Britain to tax lavish bonuses

The British government has unveiled a one-time tax on bankers' bonuses designed to rein in lavish spending as the country remains mired in recession.

The British economy has been receding for six consecutive quarters, shrinking by 0.3 per cent in the third quarter of 2009.

Treasury chief Alistair Darling said Wednesday it was time for banks that lost a combined $130 billion last year and needed taxpayer-funded bailouts to stabilize the system to start paying the British taxpayer back.

"There are some banks who still believe their priority is to pay substantial bonuses to some already high paid staff," Darling told Parliament as he delivered the government's pre-budget report.

"Their priority should be to rebuild their financial strength and to increase their lending," he added. "If they insist on paying substantial rewards, I am determined to claw money back for the taxpayer."

The proposal would levy a tax on 2009 bonuses of more than $40,800. It would be drawn from the pool of bonuses paid by a bank — rather than individual payments —and it will be paid by the bank, not the bonus recipient.

Prime Minister Gordon Brown's Labour party trails the opposition Conservative Party in opinion polls for an election that must be called within six months. Britain is the only G8 economy to remain in recession, so the 50 per cent tax on bonuses could prove popular with the general public.

Darling also downgraded his forecast for the economy this year, saying it will shrink by 4.75 per cent. That is significantly worse that the 3.25-2.75 per cent contraction he predicted at the time of the full annual budget in April.

He retained his forecast of gross domestic product growth of 1-1.5 per cent growth for next year, but also raised his 2009-2010 borrowing forecast slightly.