The City has hit back at chancellor George Osborne’s Budget pledge to raise the bank levy to offset any gains by banks at lowering the corporation tax rate.
In the Budget today he said he would reduce corporation tax by two per cent this year and one per cent in each of the following three years to leave the final rate at 23 per cent.
“Let it be heard clearly around the world – from Shanghai to Seattle, and from Stuttgart to Sao Paolo: Britain is open for business,” he said.
But he then added: "And to ensure that this is not a net tax cut for banks, I am adjusting the bank levy rate next year to offset its effect."
City experts reacted with dismay. Angela Knight, chief executive of the British Bankers Association, said such a move would threaten banks with double taxation as the levy was a fixed cost on large banks that covered business generated outside the UK.
“This is putting banks operating in the UK at a long term disadvantage - both internationally, as they compete against banks not paying such a levy, and domestically, as they compete with other sectors of the financial services industry,” she said.
“This change is not as straightforward as it first appears. Banks like other businesses want a predictable tax regime so they can plan their business accordingly.”
Matthew Barling, banking tax partner at PwC, called the announcement “surprising”.
“The tinkering with the rate of the bank levy has also resulted in four different rates being in force during the course of this year and next, which is representative of the complexity of tax rules the sector now faces.”