EDITOR'S TAKE: A windfall tax would be an act of misguided revenge

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Alistair Darling is apparently succumbing to persuasion from Gordon Brown: a windfall, or 'super-tax,' on bonuses is being mooted in Wednesday's pre-budget report.

Such a tax would be a political fop for all the millions of people calling for bankers to be pelted with rotten eggs and worse. Most people in Britain think all the blame for the financial crisis, and for the country's impending budget crisis, lies with the City.

The logic is faulty from the start. Banks share some of the blame for the financial crisis; and the culture of short term profit and bonus maximisation encouraged irresponsible behaviour without consideration of the long term consequences. But not all bankers were involved, and some of the blame must be shared by others, brokers and borrowers included.

More pertinently, however, and as we've pointed out here before, the yawning hole in Britain's budget isn't caused by bailing out the banks, but by excessive government spending and collapsing tax revenues.

Reporters like Robert Peston frequently put the cost of bailing out Britain's banks at $850bn. But Alistair Darling himself reduced his estimate for the cost of the bailout by 80% last week, to just $10bn, with the eventual cost expected to be zero once the government's stake in banks has been sold off.

As the US experience shows, bailed out banks often repay government money - at a profit. The US government would currently make around $6bn on its Citigroup stake and stands to make $2.5bn on its BofA stake. The Swiss government sold its stake in UBS profitably last year.

A windfall tax will score political points, but at what cost? No other country has gone down this route - the US contemplated the idea, but it was quickly quashed.

By imposing such a tax unilaterally and on all banks, not just those bailed out by the British taxpayer, the increasingly cash-strapped British government is driving another coffin into the notion that the UK is hospitable to the financial services industry. Long term, this could diminish tax revenue by far more than then the few 100m it's expected to raise.

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