TaxCorporate TaxAS2011: bank levy to increase revenue by £200m a year

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.

Related Articles

Q&A with the Financial Secretary to the Treasury

Corporate Tax Q&A with the Financial Secretary to the Treasury

6m Emma Smith, Managing Editor
Markets expected to respond positively to US policy changes

Corporate Tax Markets expected to respond positively to US policy changes

7m Alia Shoaib, Reporter
Government looks to close tax loophole on staff benefits

Corporate Tax Government looks to close tax loophole on staff benefits

1y AccountancyAge staff
Post-Brexit Britain ‘open for business’ as Osborne to slash corporate tax rate

Corporate Tax Post-Brexit Britain ‘open for business’ as Osborne to slash corporate tax rate

1y Fraser Simpson, Reporter
UK has ‘vital role to play’ in beating tax evasion, declares Panama Papers whistleblower

Corporate Tax UK has ‘vital role to play’ in beating tax evasion, declares Panama Papers whistleblower

2y Fraser Simpson, Reporter
Tax transparency plans adopted across Europe

Administration Tax transparency plans adopted across Europe

2y Fraser Simpson, Reporter
UK pressures OECD to tackle unhelpful tax jurisdictions

Administration UK pressures OECD to tackle unhelpful tax jurisdictions

2y Fraser Simpson, Reporter
UK leads charge for action on beneficial ownership

Administration UK leads charge for action on beneficial ownership

2y Fraser Simpson, Reporter