Is the Co-operative Bank on the brink of taxpayer hand-out?

It's looking increasingly likely the taxpayer may be on the hook for some form of financial assistance for the Co-operative Group. The troubled bank has already been ordered to raise around £1.5bn in order to buttress its financial reserves.

However around £500m of this looks likely to be supported by investors. How messy could things get? %VIRTUAL-SkimlinksPromo%

Bad debts

It's already a rather tangled, interlocking money tree as things stand. Although the Co-op Group is a mutual, the Group also owns the Co-op Bank, which is a conventional plc. This bank is under considerable pressure to raise £1.5bn, a sum which all UK banks have to have to insure depositors from losses.

This £1.5bn sum was drawn up by the UK's Prudential Regulation Authority (PRA). But a major cornerstone of the Co-op's current problems relate to the bad commercial property debts run up by the Britannia Building Society, which the Co-op bought back in 2009.

To cut a (very) long story short, although some institutional investors could be forced to take a hit on the £500m component, this also includes around 15,000 small retail investors. (But better they to take this hit than the taxpayer, many would likely argue.)

BoE help?

If this avenue is rejected however by bondholders - a 77% approval rating is needed - then the Co-op could turn to the Bank of England. The Co-op wouldn't need the titanic injections of cash needed previously by RBS and Lloyds Banking Group, but some kind of temporary loan could be on the cards.

That would mean more borrowing for the Chancellor at a time when Osborne is attempting to keep the lid on Government borrowing.

The irony is by forcing the Co-op to raise its capital reserves, the PRA appears to be putting the Co-op through the financial grinder - at a time when the Government is talking up the mutual business model.

Celebrities who fell foul of the tax system
See Gallery
Is the Co-operative Bank on the brink of taxpayer hand-out?

She may have won five Grammys and sold more than 19 million copies of her solo album, but that didn't save her from being jailed for failure to pay her taxes. She was sentenced to three months in jail, then three months confined to her home, for failing to pay tax on £1.2 of earnings between 2005 and 2007.

Hill told the court that she had meant to pay the taxes, but she had withdrawn from public life in order to raise her six children, so had been unable to pay the tax bill. She has since paid the money back, but must still spend three months at Danbury open prison.

Dolce and Gabanna were given jail sentences in June for failing to declare 1 billion euros of income. They were sentenced to a year and eight months in jail, but said they would appeal.

Heidi Fleiss was sentenced in 1997 to seven years in prison for failing to pay tax on profits from the prostitution ring she ran. She eventually served 20 months in jail, and 10 months in a halfway house - and was released in 1999.

Judy Garland was wrong-footed by a tax bill in 1967, she had her home repossessed by the IRS and was forced to live in a hotel. She died two years later.

Richard Hatch is a relatively minor celebrity, but makes the list for sheer stupidity. He was the first winner of Survivor, and its £1 million prize, but failed to declare it to the tax man. He was sentenced to jail and home confinement for more than three years.

The rapper and actor admitted he hadn't paid tax on his earnings between 2004 and 2006. He was ordered to repay $1 million and spend two years in prison. He is actually serving it concurrently with a New York sentence for possession of a weapon.

Lester Piggott was sentenced to three years in jail in 1997, after failing to declare income to the taxman. At the time it was thought to be Britain's longest-ever sentence for personal tax fraud.

Richard Pryor served 10 days in jail in 1974 for failing to pay his taxes. He told the judge that he had simply forgotten about it.

Wesley Snipes owed an impressive $17 million in tax after failing to file returns from 1999 to 2004, and was jailed for three years. On release he still had to pay the cash back.

Sophia Loren was sentenced to 30 days in prison in 1982 for failing to pay tax. She served 17 days in a Naples jail.

Nicholas Cage was never given any jail time, but after failing to pay his taxes, he was ordered to pay more than $14 million in back tax and charges. He blamed his ex-manager and accountant, and has been selling his assets to pay the taxman back.


More stories
Read Full Story