Banking bonus tax

Britain's bankers are set to lose a big chunk of their bumper bonuses with the introduction of a new windfall tax on payments.

The British government also admitted that it is facing a sharper recession than expected, and that state borrowing will need to be increased.

The measure was announced by Alistair Darling, Britain's finance minister, in his budget and coincides with growing public debate about excessive payments in the banking sector.

Banks will be hit by a one-off 50-percent tax rate on bonuses above 25,000 pounds (27,600 euros) to recoup public money that was spent to save the sector.

Darling said he hoped to raise more than half a billion pounds of state money with the measure, with revenue used to help the unemployed. He added that he was "determined to claw money back for the taxpayer."

Some analysts said the step, widely welcomed by the public, could antagonize bankers who have threatened an "exodus" from London.

Economy to shrink

Darling also revealed that the British economy was set to shrink 4.75 percent this year compared with a previous official estimate of 3.5 percent. It was expected to grow by one to 1.5 percent next year, he added.

Britain is the last major world power in recession, after France, Germany, Japan and the United States all returned to growth after the economic downturn. Borrowing forecasts for this year were revised to a record 177.6 billion pounds from 175 billion, 12.6 percent of GDP.

The country's Labour government has said it would raise income tax for all but the poorest in 2011 as part of its efforts to tackle the country's budget deficit. Labour is widely expected to lose a general election before then.

rc/AFP/dpa/Reuters

Editor: Susan Houlton