Budget2011: Banker bashing or fair game?

DOES an increase of 0.003% percentage points on a banking levy constitute “banker bashing?” Banks have complained that the increase in the government levy on bank debt announced in the Budget could place UK financial firms at a disadvantage to foreign rivals.

There are also fears that the government will increase the banking levy again. Since the levy was introduced in January the government has announced two increases – one for this year, and another for next year and beyond, announced earlier today.

From 1 January 2012, the levy on banks’ short term debt (defined as “short-term chargeable liabilities”) will be 0.078%; and 0.039% for long-term debt. The levy, which will not be charged on the first £20bn of bank debt, is trying to encourage banks to reduce their short-term borrowing – one of the causes of the banking crisis.

The Treasury has forecast that the increase in the levy will raise £630m in 2011/12. The levy is forecast to raise £2.5bn this year.

Angela Knight, chief executive of the British Bankers’ Association, said: “While corporation tax is paid on profits, the bank levy represents an additional fixed cost for larger banks operating in the UK. It also controversially can include the business that banks are doing outside the UK.

“Without satisfactory double taxation arrangements in place, this is putting banks operating in the UK at a long term disadvantage – both internationally, as they compete against banks not paying such a levy, and domestically, as they compete with other sectors of the financial services industry.”

She added that banks, like other businesses, want a predictable tax regime, to help plan their planning.

For accountants, though, complex bank tax rules could be good for business. Banks will probably need help from tax experts when calculating their liabilities under the levy.

“It’s a complex [tax] regime for banks and will have associated compliance costs,” said Matthew Barling, banking tax partner at PwC.


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