Darling 'tax grab' on bank profits

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The Sunday Telegraph said proposals, including a windfall tax on profits, were being drawn up in Whitehall amid mounting anger over the prospect of a return to big City bonuses.

Rules allowing banks to offset losses against corporation tax over a number of years could also be axed, forcing institutions to pay up more quickly, it suggested.

The News of the World said the ability to offset one year's worth of huge losses could allow banks, including those which benefited from bailouts, to avoid paying a total of £80 billion over the next 15 years.

The Treasury said any tax changes were for Chancellor Alistair Darling to decide. He is due to deliver his Pre-Budget Report within weeks.

But the Tories accused the Government of "playing catch up" after shadow chancellor George Osborne made clear last week, at the party conference in Manchester, that he was prepared to use the tax system to claw back public investment.

Talking about the corporation tax "loophole", Mr Osborne said: "We're all in this together - and that includes the banks. Struggling British families would find it grossly unfair if the banks avoided paying their fair share to help fix Labour's debt crisis."

Business Secretary Lord Mandelson warned on Thursday that the City was witnessing an "unacceptable return" to past practices on bonuses.

The Financial Services Authority could force banks to increase their capital ratios if they are deemed to have handed out excessive rewards to high-earning staff, he suggested.

He spoke out after it emerged 5,500 UK bankers at Goldman Sachs - which was bailed out by US taxpayers - were in line for bumper bonuses after a surge in profits.