Corporate tax cut – but not for the banks

BUSINESSES welcomed George Osborne’s decision to go further and faster in lowering corporation tax in yesterday’s Budget.

But banks didn’t get the cut, with the Treasury increasing its bank levy for the second time in as many months in order to offset the gain they would have received from the corporate tax measure.

Osborne announced that he would cut corporation tax by 2p – a penny more than expected – to 26p from April. The headline rate is expected to fall by 1p a year until it hits 23p in 2014-15.

But the chancellor was quick to single out banks: “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,” he declared.

Although banks will benefit from the tax cut this year, they will then have to pay out £780m more than expected over the following three years due to a larger rise in the government’s bank balance sheet levy. It will rise to an 0.078 per cent charge on their global assets rather than the planned 0.075 per cent.

The change marks the second surprise jump in the levy since the country’s five main banks signed up to project Merlin, in which the government vowed to provide a stable tax environment. The £780m increase is in addition to £800m extra raised from the levy increase this year.

KPMG tax partner Tom Aston said: “While the bank levy increase is small, this is the second… and some banks will be alarmed by the direction of travel.” PwC’s Matthew Barling said: “The tinkering with the levy has resulted in four different rates being in force during... this year and next, which is representative of the complexity of tax rules the sector now faces.”

A spokesman for Standard Chartered said: “We just want to see consistency and agreement across the globe on these levies.”