Emergency Budget: Europe speaks with one voice on bank levy

French and German governments say they will join the UK in introducing a balance-sheet bank levy, however concerns remain the UK will suffer if it is not joined by other major international economies.

Chancellor George Osborne used his emergency budget speech to announcement a joint agreement by German and French Governments to introduce their own bank levys. the UK bank levy is expected to raise about £2bn a year.

France said it will present the details of its bank tax in its coming budget while Germany said a framework will be put forward at the end of March, to be presented to cabinet by summer.

“All three levies will aim to ensure that banks make a fair contribution to reflect the risks they pose to the financial system and wider economy, and to encourage banks to adjust their balance sheets to reduce this risk,” the three nations said in a joint statement.

Osborne has sought to address criticism his levy will be out of step with other nations, however already there are warnings the levy may make the UK competitive.

Peter Maybrey, financial services tax partner at PwC said he was concerned the levy may adversely impact the competitiveness of the financial services industry.

“Other territories, whose banks have not been as adversely affected in the financial crisis, are likely to resist bringing in a similar levy,” he said.

“Canada, Australia, Japan and Switzerland may fall into this category - this could lead to a migration of business activity from the UK to such other territories which either do not impose a levy or impose one at a lower rate than the UK.”

According to budget papers the levy will raise £1.1bn during 2011 – 2012. During the 2014-2015 year the levy will raise £2.4bn.

The governments said while “the specific design of each may differ to reflect our different domestic circumstances and tax systems,” the levies themselves will reflect the need to have a level playing field.

The issue will be discussed by the three nations at the G20 summit in Toronto in on 24 June.

Further reading:

Joint statement by the French, UK and German Governments on bank levies