Banks implore Osborne to rethink balance sheet tax

SENIOR members of the banking community yesterday implored chancellor George Osborne to reconsider plans to introduce a sweeping tax on bank balance sheets, arguing that a simple levy on profits would be a fairer and more transparent option.

Osborne is set to outline details of the levy in tomorrow’s emergency Budget and is widely expected to target banks’ balance sheets instead of profits, following US President Barack Obama’s preferred taxation route. That would mean that banks would be taxed according to a complex measure pitting assets against their reliance on the wholesale markets, rather than handing over an easily-calculated proportion of their spoils for the year.

Angela Knight, chief executive of the British Bankers’ Association, said: “Clearly with such a measure the government would be trying to target risky practices in particular, but the banks’ worry is that target might well end up being much wider than anticipated. Just one example could be that banks start shedding assets seen as being more risky – a category which includes small business lending, the very area ministers are trying to support.”

Some of Britain’s most powerful bankers have also been quietly urging the government to rethink the plan, with institutions like HSBC and Standard Chartered believing that a balance sheet levy is not the best way forward.

One said yesterday that the tax would almost certainly fall victim to the “law of unintended consequences” and would need to be thought through extremely carefully to avoid unwanted repercussions for the sector.

Osborne is expected to announce tomorrow that the tax will aim to raise a good deal more than the £1bn first mooted, potentially up to around £3bn.

Last week he confirmed plans for a levy in his maiden Mansion House speech to the banking and finance industry.

Osborne said: “There are real issues of fairness. That is why we will introduce a bank levy and demand further restraint on pay and bonuses.”