THIS week, in a speech to leading figures from across the financial services industry at Mansion House, George Osborne will outline the government’s plans for reform within the banking sector.
One of the most significant proposals I have no doubt the Chancellor will touch upon is his determination to introduce a “bank tax” in the UK, despite the G20’s failure to produce a consensus on this issue. The prospect of a globally administered bank tax is not only undesirable but to expect the G20 to produce a specific proposal was unrealistic. Member states such as Canada, China, India and Brazil did not have to bail out their banks and thus, understandably, see no reason why they ought to introduce such a levy, at least one to create some kind of “insurance fund”.
However, there remains a good deal of support for a bank tax among many of our key international partners who are facing similar economic and political challenges to the UK. This is perhaps the only method of raising tax from banks as the huge losses accumulated over the past two years are, in many cases, tax deductable which means some won’t pay corporation tax for a long time. Osborne knows this and, whilst he may have picked up political points by publicly declaring the government will “introduce a levy regardless of whether other countries will or will not,” he will be aware there’s little chance of the UK being left isolated. Whilst the prospect of a globally administered bank tax has receded, both EU internal markets commissioner Michel Barnier and European Council President Herman van Rompuy this week reaffirmed their determination to implement a bank tax by 2011, to be used to create some form of EU “insurance fund”.
Closer European cooperation and integration is entirely appropriate in many areas – it is very much in our interests to maximise the business benefits of being a part of a growing economic bloc with a single market in financial services. Certainly for the UK those “costs” are rising, particularly from the imposition of a multitude of new regulations and extra layers of surveillance and box ticking. Is the UK going to accept a Brussels imposed tax to add to the growing burden? I hope not. What form a UK bank tax will take and what the proceeds will be used for remains unclear but one thing is certain; this is a matter for our own national government to decide.
Stuart Fraser is the Policy Chairman at the City of London Corporation.