Bank levy set to be reduced

GEORGE Osborne is likely to make significant concessions over his plans for a banking levy, after major institutions like HSBC and Standard Chartered warned it could force them to relocate.

The partial climb-down follows weeks of intense lobbying from the industry during a consultation period that will end on Friday.

Although the chancellor still intends to raise £2.5bn-a-year from the levy on banks’ balance sheets, he is expected to redesign the policy so that it is fairer to banks that have large numbers of customers in Asia.

The Treasury had originally planned to apply the full levy to “riskier” forms of funding, such as wholesale liabilities that mature in less than a year. Deposits not covered by insurance or a state guarantee would be levied at half the amount, while guaranteed deposits would be exempt.

But Asian-focused HSBC and Standard Chartered have argued that they will be disproportionately affected, because retail depositors in Asia do not enjoy the same state guarantees as those in the UK, meaning they would be taxed at the half rate.

HSBC and Standard Chartered claim that Asian retail deposits should also be exempt, because a strong savings culture means the deposits are “sticky” and unlikely to be withdrawn – even in the absence of a guarantee.

City A.M. understands that the chancellor has some sympathy with this view, although he has not yet decided how to treat overseas retail deposits.

Meanwhile, the rate of levy is likely to be much lower than originally mooted. When he first unveiled the policy, Osborne said a charge of 0.04 per cent would be levied on a bank’s balance sheet, rising to 0.07 per cent in 2012-13 and raising £2.5bn by 2013-14.

However, Treasury officials say such a levy would likely raise nearer £4bn, a sum which is considered too high by the coalition government.

A Treasury official familiar with the chancellor’s thinking said the actual levy would likely be set at a much lower rate.