By Edmund Conway
THE International Monetary Fund is expected to recommend an unprecedented new ''excess profits tax'' on banks worldwide.
The fund is expected to suggest the tax - which is effectively on banks' cash flow - as one of the best ways governments can raise significant amounts from banks without drastically distorting the financial system.
The tax will be announced alongside the Obama-style banking levy, which the IMF will also rubber-stamp in its report at its spring meetings this month.
The IMF was commissioned by the Group of 20 leading economies last year to investigate new taxes on banks.
Although most attention initially focused on so-called Tobin taxes, which levy small charges on banks' financial transactions (a model promoted by campaign groups as the Robin Hood Tax), the fund is likely to rule them out as a serious prospect. The move will frustrate Gordon Brown, who threw his weight behind the transactions tax in the early stages of the research.
Most had assumed that this would mean the fund would give its central recommendation to a form of balance sheet levy, which has already been implemented in Sweden, and which has been proposed by the Obama administration.
But the fund is also considering an equally important recommendation for a less well-known tax that simply levies a charge on bank profits, beyond a certain level.
The advantage of the balance sheet levy is that it should encourage banks not to build excessively large stocks of assets, as the Royal Bank of Scotland did before the crisis. The excess profits tax is thought to be the most efficient way to raise money from banks. In time, it could replace regular business taxes as the best way of generating revenue from financial institutions.
Michael Devereux, director of the Oxford University Centre for Business Taxation, said: ''Although this is effectively a tax on banks' cash flow, if I were the IMF, I would present it as an excess profits tax - additional to everything else and particular to banking because that is whom we would like to tax.
''Unlike a balance sheet levy, it is not designed to change behaviour and stop them from doing silly things. It is a way of collecting money - the most efficient way we can do it.''
The proposals, which the British government and the Conservatives have indicated they would adopt, could represent a revolution in the way banks, and wider businesses, are taxed in Britain.
Cash-flow taxes are not used elsewhere in the developed world, except for an obscure system in Belgium. In some ways, a cash-flow tax would be equivalent to VAT, since it would be levied broadly on bank activity.
Britain toyed with an excess profits tax during World War II, although the use of such a system in a specific industry would be unprecedented.
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