THE Treasury plans to rewrite Britainâ€™s tax rules to usher in a new wave of Sharia law for the countryâ€™s financial system.
The one-line revelation is buried in the 212-page pre-Budget report.
It is among a string of startling details which barely merit a mention in Alistair Darling’s controversial mini-Budget – prompting fresh accusations that Labour is "burying bad news".
The Government wants to tap into the fast-growing Sharia finance market, set to top £205billion a year, and turn London into the "global gateway for Islamic finance".
Many conventional financial products are not Sharia compliant because Muslim clerics view conventional loans, which involve interest payments, as sinful.
The UK Government was one of the first Western countries to issue a state-backed sukuk, an Islamic bond. It now wants to rewrite tax laws to stop Muslim businessmen being unfairly taxed when they try to raise money on their companies.
Conventional loans allow them to take equity out of their business, using the property as collateral, but to be Sharia compliant a Muslim "sells" the business to the bank and then rents it back. That leaves the businessman facing a bill for capital gains tax and the Treasury wants to level the tax playing field.
Mohammed Amin, head of Islamic finance at PricewaterhouseCoopers, said: "The UK has become the leading Western country in Islamic finance by taking a series of measures to ensure that Islamic finance is taxed no worse and no better than conventional finance.
"The pre-Budget report continues this progress by including measures to equalise the tax treatment of property refinancing transactions." Ministers are also considering issuing Government bonds to Islamic banks to help them comply with new financial regulations.
With three independent Islamic banks and high street names at the forefront of compliant accounts, London is one of the world’s largest centres for Islamic finance.
Sharia-compliant mortgages, car insurance and even baby bonds are available for Muslims wanting to avoid "riba" – interest payments.
Supporters say the Government is wisely getting in on the ground floor of a market which could net the City billions in the future.
Critics warn Labour is rushing into a financial system it does not fully understand and question how far laws should be rewritten to accommodate Islamic practices. The Financial Services Authority says its policy is one of "no obstacles, no special favours" for Islamic finance.
Last week’s pre-Budget report includes the revelation that bankers will still net £4.5billion in bonuses this year despite the so-called super-tax on the City.
Ministers also used the cover of the report to admit the Homeowner Mortgage Support Scheme, permitting deferment of interest payments, has been an abject failure.
Shadow Housing Minister Grant Shapps said: "It’s gone the way of many other Brown initiatives. We’ve stumped up for the expensive consultancy bills but the actual scheme has failed to help more than a handful of hard-pressed families."
A Communities and Local Government spokeswoman said: "The Government has widely publicised that fortunately only 15 families have so far needed the backstop help of the Homeowner Mortgage Support Scheme."