AS2011: bank levy to increase revenue by £200m a year
Chancellor announces shock increase to bank levy to raise £310m a year
THE INCREASE in the bank levy will bring in more than £200m a year extra in revenue for the Exchequer, the government has estimated.
The levy was increased to 0.088% on banks’ profits from 0.075%. It was widely expected that Chancellor George Osborne would increase the rate to 0.078%, a measure already planned for January 2012.
The extra increase announced today would raise around £310m – £325 a year by 2016/17. This is in contrast to the estimates of around £100m a year that were announced for an 0.078% rate.
The chancellor also reiterated his opposition to the financial transaction tax proposed by the European Union.
Advisors attacked the increased rate. Matthew Barling, banking tax partner at PwC, said it was encouraging that the government ruled out a financial transaction tax.
However, he added: “As well as tax rates, businesses also look at the predictability of the tax system. With so many recent changes the UK is not scoring well in this field. A third change in the rate of the bank levy in less than a year is not a good advert for the predictability of the UK tax system.”
Tom Aston, financial services tax partner at KPMG, said that this will make banks question the attraction of working in the UK.
“The structure of the bank levy means that it is a major cost of doing business in the UK for international banks,” he said. “Those UK banks who have maintained their balance sheets at the level expected by the Treasury will feel that they have been poorly rewarded for doing so.”
Aston also expressed concern that it would affect lending. “The government’s desire to maintain an annual bank levy take of at least £2.5 billion may create the wrong incentives for bank lending,” he said.
“If banks shrink their balance sheets then they will pay less bank levy, but typically at the same time they will be lending less to the economy. The banks who maintain their lending are being asked to pick up the bill for those who lend less. UK banks who remain here must also be worried that they will be asked to pick up the bill for any large banks who decide to leave the country,” Aston added.