The surcharge could hit the UK's banking sector to the tune of "far more than double" what the Treasury forecast (Source: Getty)
ccountancy giant EY added its voice to the chorus of those speaking out against the government's new bank surcharge, warning that under the new rules the tax take from the banking sector could be double what the Treasury has forecast - and retail banks could be the ones hit hardest.
Under plans for the surcharge, announced at this year's July Budget, while the current levy will be "slowly and gradually" reduced over the next four years, the eight per cent surcharge will be introduced on all profits from the beginning of January 2016. With that in mind, banks will be hit hardest in 2016 and 2017.
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EY said it built models of an archetypal balance sheet and profit forecast for a challenger bank, a large UK-focused domestic bank, and a non-UK headquartered bank.
While the good news was that the total tax take from the UK's burgeoning challenger banking sector is likely to be "proportionally very small", just under £6bn will be raised from "just 10 of the other banks".
"Given this, the tax take from the entire sector could be far more than double the [Treasury] forecast."
“There’s been an acceptance by the banking sector that the political reality post-financial-crisis was going to bring a more punitive tax regime," said Richard Milnes, banking partner at EY.
"However, the last 12 months has been a sustained assault on banks’ tax positions. The levy was pushed to breaking point, and in trying to fix the distortions created by bank levy, the current policy actually significantly increases the pain in 2016 and 2017. It retains the pressure of the bank levy on balance sheets, which we know puts a brake on lending to the real economy, while simultaneously ramping up taxation on profits."
Milnes called for further assessment on the new tax.
"Almost every change to bank tax policy since the crisis has been made without consultation or detailed impact assessments. It's clear to use that more work needs to be done to understand how current policy impacts not just the UK banking sector as a whole, but also each of its constituent parts."