Q. HOW MUCH MONEY DOES THE GOVERNMENT EXPECT TO RAISE FROM THE BANKING LEVY?
A. George Osborne wants to raise £2.5bn a year from a levy on banks’ balance sheets. Aides say he thinks this is the “maximum sustainable amount of revenue” he can extract from the banks.
Q. WHAT DOES THE CHANCELLOR MEAN BY “MAXIMUM SUSTAINABLE REVENUE”?
A. An aide familiar with the chancellor’s thinking told City A.M. that Osborne wants to make the banks “pay their fair share”. However, the aide added: “But equally we are not going to tax them so much that they leave the country and we start losing revenue.
“Obviously there is a point where you tax them so much they start leaving the country and going to Singapore or the US or wherever. Obviously, that approach doesn’t make sense to anybody.”
Q. WOULD BANKS PAY LESS BY MOVING OFFSHORE?
A. Some banks would, yes. Foreign banks only have to pay the levy on their UK operations. So if HSBC or Standard Chartered were to move to Hong Kong, it wouldn’t have to pay the levy on any foreign assets at all – just British ones – saving it a considerable amount. However, some foreign banks could be levied twice, if their home countries adopt a similar tax. The Treasury says it will give relief to banks being taxed twice but it hasn’t come forward with details on how it expects to do this.
Q. IS THERE ANY PROOF THAT ADDITIONAL LEVIES ON THE BANKS AFFECT OTHER SOURCES OF REVENUE?
A. Treasury officials think so. According to an internal analysis, Alistair Darling’s £3.5bn levy on bonuses actually only raised net £2.3bn. That’s because the exchequer lost out on other sources of revenue – such as income tax receipts – as banks and bankers tried to find ways of avoiding the tax, such as deferring their bonus until the bonus levy expired. Osborne wants to avoid making a similar mistake with his £2.5bn levy.