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Project Merlin: Banks ‘expect a level playing field’

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Leading UK banks have said they expect a commitment by government to the creation of ‘a level playing field internationally for UK banks’. Their joint statement on ‘Project Merlin’ was published a day after the Chancellor announced an £800 million increase in the bank levy for 2011 and critics warned that banks will be the main beneficiaries of a proposed new exemption for foreign branch profits earned by UK companies.

The government needs to make sure that ‘we get the maximum sustainable tax revenues from the financial sector’, George Osborne said on Wednesday. It welcomed commitments by the banks on ‘lending expectations and capacity, the size of the 2010 bonus pool, pay disclosure and support for regional growth and the Big Society’.

Lord Oakeshott resigned as Liberal Democrat Treasury spokesman, saying: ‘If this is robust action on bank bonuses, my name's Bob Diamond.’

George Monbiot claimed in a comment piece in The Guardian that David Cameron had been ‘quietly been plotting with banks and businesses to engineer the greatest transfer of wealth from the poor and middle to the ultra-rich that this country has seen in a century’. The proposed corporation tax exemption for foreign profits would, Monbiot said, create a ‘powerful incentive to shift business’ out of the UK.

Tax was one of four components of the banks’ statement on Project Merlin. The signatories were Barclays, HSBC, Lloyds Banking Group, RBS and, with respect to lending, Santander. The statement said:

‘The four banks have committed to abide by HMRC’s new UK Code of Practice on Taxation for Banks, requiring compliance with both the spirit and the letter of the tax law.

‘A public statement of their expectation to contribute a cumulative £8 billion of total tax take (covering direct and indirect sources, including the Bank Levy and VAT) in 2010 and, on the same basis, £10 billion in 2011.

‘Each bank’s tax payment expectations, as set out above, will be subject to the economic environment and its profitability. The banks expect that their overall tax contribution to HMRC/HMT will grow as performance strengthens and profits grow; as an indication, they expect they could contribute a cumulative total tax take over the 5-year implementation period for the Spending Review actions (spanning the period 2011 to 2015) that is a significant multiple of the 2010 figure noted above.’

In response, the government said it is committed ‘to maintaining London’s position as a leading financial centre, and as a location for global financial services companies and to supporting the competitiveness of the financial services firms based in the UK’.

It is also committed to ‘not repeating in 2011 the one-off bonus tax announced in Budget 2009,’ the Treasury said. The tax introduced by Labour raised £2.3 billion net but could not be repeated without ‘massive tax avoidance’, Osborne told MPs.