British banks face levy to offset cuts in corporation tax

CHANCELLOR George Osborne refused to let the British banking sector off the hook yesterday as he announced another hike in the bank levy to offset corporation tax cuts.

The bank levy is to be increased from next January, raising a further £285 million (€328m) in 2012.

The rise is the second so far this year after the Treasury announced last month the bank tax would be increased to £2.5 billion this year, raising another £800 million.

Mr Osborne said his latest move was designed to ensure yesterday’s corporation tax cut — of 2% in April and 1% each year for three years — would not be a “net tax cut for banks”.

But the industry reacted with dismay at yet another change in the levy, which was only brought into force in January. The decision has reinforced fears of an exodus of British banks with global operations as they face ever more onerous charges.

The British Bankers’ Association (BBA) said Mr Osborne was once again putting the country’s banks at a disadvantage globally with an unpredictable tax regime.

It added the levy rise was not a straight swap for corporation tax cuts, with the former being a charge on activities rather than profits.

Angela Knight, ABBA chief executive, said: “While corporation tax is paid on profits, the bank levy represents an additional fixed cost for larger banks operating in the UK.

“It also controversially can include the business that banks are doing outside the UK.

“Without satisfactory double taxation arrangements in place, this is putting banks operating in the UK at a long-term disadvantage — both internationally, as they compete against banks not paying such a levy, and domestically as they compete with other sectors of the financial services industry.”

Chris Sanger, global head of tax policy at Ernst & Young, said the government had “chosen to raid the banks to pay for the cuts in corporation tax”.

“By increasing the burden faced most by banks headquartered in the UK, the Chancellor continues to increase the incentives for banks to migrate,” he said.

The government introduced the bank levy to ensure the sector helped share in the costs of rebuilding the economy following the financial crisis and subsequent recession.

However, there has been concern over disproportionate effects on banks with international operations, such as Barclays and HSBC, which will pay the levy on all activities, including those outside of the UK.

The Treasury has also yet to resolve many of the double taxation issues it throws up where banks are subject to charges in other countries.