Bank levy increased again to stop lenders benefiting from tax cuts

Tim Wallace
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THE BANK levy was raised again yesterday to take more from lenders and stop them benefiting from falling corporation taxes.

But analysts said it risks having a perversely negative impact on lending – just when the government wants more lending to businesses and households.

The tax will take 0.156 per cent of each large bank’s balance sheet and has been increased each year as banks shrank in the crisis’ wake.

It will bring in £2.7bn this year and £2.9bn the year after.

However, several years on from the crisis taking hold this means the worst performing banks are now hit less hard as they have shrunk their balance sheets.

At the same time the banks lending more as the government wants will be hit harder as the new loans increase the size of their balance sheets.

Furthermore, retail deposits above £85,000 are now included in the calculation, hitting those with a retail funding model and removing their advantage over those reliant on wholesale funds.

Analysts warned the higher rate could begin to drive international banks away.

“In broadening the base of the levy the government has tacitly acknowledged that there is only so much that can be achieved by rate increases alone and, perhaps, that non-UK headquartered banks need to bear a higher share of the cost,” EY tax partner Jonathan Richards.

“There must come a point at which the uncertainty around the bank levy rate, as well as the attendant cost, acts as a disincentive for such banks to locate business in the UK.”

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