U.K. Announces 50 Percent Tax on Bankers' Bonuses

LONDON – The British government announced a one-time tax on bankers' bonuses as it laid out its plans for the country's ravaged domestic economy ahead of a looming general election.

With Britain the only major economy still in recession and Prime Minister Gordon Brown's Labour party trailing the opposition Conservative Party in opinion polls for an election that must be called within six months, the 50 percent tax on bonuses could prove popular with the general public.

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

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

"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 tax will be levied on 2009 bonuses of more than $40,800. It will be imposed on the pool of bonuses paid by a bank, rather than individual payments and it will be paid by the bank — not the recipient of the bonus.

Darling said that measures to keep people from avoiding the bonus tax would be introduced "with immediate effect."

The government is under pressure to reduce its spiralling debt after Britain was hit hard by the global credit crisis.

Britain remains in recession, with the United States, Germany and Japan all already recording growth.

Darling on Wednesday downgraded his forecast for the economy this year, saying it will shrink by 4.75 percent. That is significantly worse that the 3.25-2.75 percent 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 percent growth for next year, but also raised his 2009-2010 borrowing forecast slightly to 178 billion pounds, from 175 billion pounds previously.