Q and A: What has happened to the bank levy this time?

Q What has happened to the bank levy?
A It is being hiked again, the fifth rise since its introduction in 2011. Next month it goes up to 0.156 per cent of each big bank’s balance sheet. It is also being extended to include large retail deposits in the calculation.

Q Why does it keep going up?
A The aim is to raise it about £2.5bn each year from the tax in an effort to stop banks benefiting from the cuts in corporation tax. It should bring in £2.2bn this year, £2.7bn next year and £2.9bn in each year after that.

Q If it has to keep going up to stay above the target, does that mean the levy is not working properly?
A Sort of. Many big banks have been shrinking since the crisis, so there is a smaller balance sheet to tax. However banks are recovering and lending more, so will pay more as they grow.

Q I thought the government wanted to encourage more lending?
A That is the idea, but it is also deemed politically clever to punish banks. Similarly, it is now seen as more important to tax retail banks’ deposits than to encourage this type of funding.

Q Does that mean this could backfire?
A It is a possibility. Foreign banks may start to base less of their operations here, for instance, and as the costs grow it could make loans become more expensive or scarcer.

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