The Liberal Democrats have set out plans to break up the banks and mutualise Northern Rock as well as other government owned banks as part of its election campaign.
Nick Clegg, leader of the Liberal Democrats says it plans to split up the banks, to separate low risk deposit taking banking and utility banking from high risk investment banking.
He says: “We appreciate that separating these banking functions is complex, and will take time. We will consult about the best way to split up these banks. However until such a time, the taxpayer will have to continue underwriting the banks. To recognise this we are proposing a new levy on bank profits at a rate of 10%.”
The levy would be supplementary to corporation tax. However, unlike corporation tax, it would be payable on all profits made within the tax year, without the deduction of previous years’ losses.
Clegg says: “Unlike windfall taxes, a banking levy of the kind we are proposing is not arbitrary as it is a direct recognition that banks have received beneficial and explicit taxpayer support without having to pay for it.”
The party also believes there is a particularly important role for mutuals, social enterprises and co-operatives to play in the creation of a more balanced and mixed economy. It would also pass a new Mutuals Bill to bring the law up to date and give responsibility for mutuals to a specific minister.
Clegg says it will give financial regulators a clear objective of maintaining a diversity of providers in the financial services industry. As well as “seek to turn Northern Rock into a mutual, and investigate whether mutualisation could be applied to parts of other financial institutions owned by the government.”
It also wants to divide ownership of the Royal Mail between an employee trust and the government, with the remaining 49% being sold to create funds for investment. To give both Royal Mail and post offices a long term future, Clegg says it would separate Post Office limited and retain it in full public ownership.
Clegg says: “At the heart of our plans for economic change is a simple insight: we need to devolve and disperse economic power, particularly in the banking sector.
“Most people, except perhaps Gordon Brown, now recognise that too much centralisation in politics has led to wasteful bureaucratic public services and a command-and-control state that leeches power away from people.
“I believe the same analysis can be made of our economy.
“Power has been too concentrated in a few super-banks.”