Sustained bank levy takes £3bn from lenders
BANKS will cough up almost £3bn in bank levy payments every year for the forseeable future, as the sums on which the tax is based are re-calculated.
The chancellor did not increase the rate yesterday, as he had already hiked it to 0.156 per cent of big banks’ balance sheets, the levy’s seventh rise since it was introduced in 2010.
But he is looking at broadening the range of banks who will pay, launching a consultation on how to charge different sizes of bank different rates.
“Currently only 30 to 40 banks are subject to the levy and more than half of that is paid by just four banks,” said EY’s Jonathan Richards. “The announcement may suggest a wish to share the burden across a greater number of banks or to alter the proportion of bank levy paid by UK banks as compared with overseas banks.”
The money the levy is forecast to rake in will increase, from £2.3bn in this tax year to £2.7bn next year and £2.9bn for the years after that.
The revenue is firmly above the £2.5bn the chancellor had been trying to raise in previous years.
The charge is being re-calculated to fit in with the EU’s plan for a similar levy on banks, intended to build up a rescue fund should the lenders fail in future.
Britain’s largest banks are considered too big to help with the fund, but the Treasury will run its levy on a similar basis. As a result the Treasury is consulting on redefining which derivatives count towards the tax liabilities.
Analysts fear the sustained high rate of the tax is damaging banks’ recoveries and Britain as a financial hub, a result far removed from the levy’s initial aim of making broken banks slim down.
“The changes to the levy rules and future rises in the rate already announced will increase the overall tax charge facing banks, heaping further pressure on this sector,” said KPMG’s Tom Aston.
“There is little doubt this is reducing the attractiveness of the UK operating environment for the world’s largest banks as they consider where to invest in the medium term.”