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The government is to prematurely increase the rate at which it charges the new bank levy, with the intention of boosting the revenue raised in 2011 by £800 million to £2.5 billion.
Original plans, set out in draft legislation issued last December, had for a financial institution's total capital over £20 billion to be taxed at 0.05%, a setting that was predicted to earn £1.7 billion for the public purse by the end of the year.
However, following a claim by the Bank of England that the near-term outlook and resilience of the UK banking sector has improved, the Treasury has announced that from 1 March the rate will be 0.1% for two months, to offset the 0.05% charged in January and February, before shifting to 0.075%, the rate that was previously mooted to come into effect in 2012.
Peter Maybrey, a partner at PricewaterhouseCoopers, said next month’s rate-change will likely be seen as ‘disadvantageous to the competitiveness of banking in the UK, as much for its unpredictability as for the increase in tax burden'.
He added, ‘The change has not been trailed in advance. It comes on top of the one-off tax on bank bonuses last year and significant change in the regulatory environment.
‘In the area of tax, one of the most common issues cited by financial institutions as affecting UK competitiveness and ease of doing business is predictability and stability of the UK tax system. On occasion, this can be considered as a more important issue than the absolute rate of tax or amount raised.’
The chief economist at the Institute of Directors, Graeme Leach, remarked, ‘When the levy was first introduced, we cautioned that there was a real risk that it would ramp up over time, and risk undermining the competitiveness of the City. The announcement of a further increase… confirms our initial concern. Let’s hope it’s the last increase.’
The impending higher rate of the bank levy was denounced by TUC general secretary Brendan Barber as ‘pathetically small’.
He claimed the additional money it is forecast that banks and building societies will pay out ‘barely covers the cost of the corporation tax cut the chancellor is giving… Rather than set alarm bells ringing in the City, this levy will be met with the sound of clinking champagne glasses.’
