Banks face repeated levy hikes over coming years

BANKS face the prospect of having to repeatedly calculate the cost of the government’s bank levy after chancellor George Osborne hiked it yesterday and is likely to have to do so again.

Osborne put up the levy for the second time this year, increasing from 0.075 to 0.088 per cent from January onwards. He had already hit banks with an immediate rise from 0.05 per cent in February – just a month after the tax’s introduction.

The treasury claims that the purpose of the tax, which will cost the major banks several hundred million pounds each per year, is to push banks towards “less risky funding structures”.

But as a result of Lloyds and RBS having reduced their wholesale funding exposure by more than expected, the treasury is increasing the levy to get the full £2.5bn for which it has budgeted, suggesting its main purpose was revenue-raising.

Experts say the government will have to do the same again next year because its forecasts make the same mistake of assuming that banks will make little progress in cutting their wholesale funding.

However, some of that will be offset by high inflation reducing the real value of the government’s £2.5bn revenue target.