THE government yesterday finalised legislation imposing a levy on banks that will raise £2.5bn for the treasury, with the tax to be charged at 0.05 per cent next year and 0.075 per cent in 2012 – although it could be adjusted depending on the tax receipts generated.
The rates are higher than anticipated, with the draft bill in June putting the tax at 0.04 and 0.07 per cent. The Treasury claims that the tax is intended to “encourage banks to move to less risky funding profiles”, but chancellor George Osborne says the primary aim is to raise revenue: “I’m after £2.5bn and we’ve made it clear we are prepared to alter the rate to get that,” he said.
It will apply to bank balance sheets after an allowance of £20bn and excludes many deposits and equity capital. RBS has estimated that the levy will cost it £315 next year and £473m in 2012, while it is understood that Barclays is making provisions for an impact of £380m.
The tax will apply to 30 to 40 financial institutions, with some exemptions for those potentially facing a double levy due to a heavy presence in other jurisdictions considering a bank tax, such as Deutsche Bank.
The announcement prompted concerns that by deciding to implement a levy alone, the UK could price itself out of the market for attracting financial services investment.
CBI’s director for competitive markets Matthew Fell said: “To be truly effective and avoid undermining competitiveness, any new rules should be coordinated internationally or they risk harming economies. This is particularly true for the UK, given London’s role as a global financial centre.”
British Bankers’ Association chief executive Angela Knight told City A.M.: “In many respects, the design has improved (since its first drafts). However, we still remain concerned about the effect of the bank levy on the international competitiveness of the UK.”
Many banks have threatened to move operations and jobs abroad due to increasingly onerous regulation in the UK.