Bigger tax on British banks on way

THE British government will tax banks’ balance sheets at a higher rate than first proposed, raising almost £9 billion (€10.68bn) over the next four years.

Starting on January 1, the government will charge 0.05% instead of the 0.04% announced in June, the Treasury said in a statement. The rate will rise to 0.075% from 2012 rather than 0.07%.

The rate is being increased so that the Treasury can hit a revenue target of £2.5bn a year from the levy to help Prime Minister David Cameron narrow the record budget deficit. The tax will apply to banks with revenue of more than £20bn.

The levy seeks to ensure banks “make a fair contribution in respect of the potential risks they pose to the UK financial system and wider economy,” Treasury minister Mark Hoban said in the statement.

It also aims to “encourage the banks to make greater use of more stable sources of funding, such as long-term debt and equity, working with the grain of our wider reform program.”

Chancellor of the Exchequer George Osborne vowed in October to “extract the maximum sustainable” revenue from financial services firms as he seeks to eliminate a deficit forecast to reach 10% of gross domestic product in the fiscal year through March. The levy will affect the global businesses of British banks and the British-based units of foreign banks.

The British Bankers’ Association said it was “very concerned” about the effect of the tax on Britain’s international competitiveness.

“We believe that urgent steps are required to prevent the multiple charging of bank levies on multinational banks,” the BBA said in an e-mailed statement. The higher rate will raise an extra £400m for the Treasury over four years.

“The banks’ expectations on the levy have been quite well managed following the initial shock in June when the bank levy was unveiled so, although no one will be pleased to see a higher-than-expected levy, it should not be too much of a surprise,” Tom Aston, financial-services tax partner at accountancy firm KPMG in London, said in an e-mailed statement.