Banks braced for 'windfall tax

High street banks face a recurring "windfall tax" of up to £400m every year to pay for the government's planned universal bank, according to industry executives.

Bankers say they that under current proposals the industry will have to stump up running costs - estimated to be at least £150m and as much as £400m - for more than 3m bank accounts used by people on social security.

One banking source said: "Is it time to throw up a levy on banks - a windfall tax? This is money we are being asked to pay up and our shareholders might want to know [why]."

Bankers are anxious for clarification of the government's estimates of the cost, and the state's contribution, to running the bank which is being created to help facilitate the payment of social security di rectly into bank accounts rather than cash.

The government will tell the banks this week precisely what the cost is and how it will be met. Ministers will also tell the banks that it should be run by one institution with the cost shared across the industry and expects the financial services sector to display its "social responsibility". The government has made it clear that it does not intend to levy a "windfall tax" in the way it did on utilities three years ago. Many of the banks believe the universal bank in post offices duplicates existing efforts and lacks commercial logic because it will always run at a loss.

This is because they expect the account holders, predominately people on social security, to withdraw all their money on the day it goes into the account, giving the bank no opportunity to make a profit. Industry experts are reluctant to reveal their estimates of the cost of running the universal bank but they range from £150m to £400m for each year of the bank's operation. The £400m appears to based on the amount of money the Post Office faces losing as a result of the automation of benefits payments.

The concern about the recurrent nature of the cost ap pears to have mounted following a meeting last month between Stephen Byers, trade and industry secretary, and the chief executives of the big banking groups.

Alan Johnson, the Post Office minister, said last night: "Some points have since been raised by the banks and we will respond to these fully in the next few days."

One banking source said: "The government needs £400m [to cover lost revenues for the Post Office]. This is a tax recurring every year."

Another industry source, who put the cost lower, in the region of £150m, still saw it as a "lot of money" to provide bank accounts to an estimated pool of 3.5m people - a cost of at least £50 per person per year.

The Treasury, refusing to comment on the size of estimates, said that discussions would continue.