Increased taxes on the banking sector aimed at raising an extra £5.3 billion over the coming five years have been criticised as an “anti-competitive” move that could damage the UK’s financial services industry.
Chancellor George Osborne today said that the sector was “one of Britain’s most important and successful industries, employing people in every corner of the country”, but he would be asking banks to “contribute more” to the wider economic recovery.
Using his Budget speech to announce an increase in the bank levy from 0.156 per cent to 0.21 per cent, the Chancellor said that this move would raise an additional £900 million a year.
He added: “We will also stop banks from deducting from corporation tax the compensation they make to customers for products they have been mis-sold, like PPI. Taken together these new banking taxes will raise £5.3bn across the forecast.
“The banks got support going into the crisis; now they must support the whole country as we recover from the crisis.”
Susie Walker, head of tax at accountant Johnston Carmichael, said the increased pressure on the banks did not come as a surprise, particularly since state-backed Lloyds Banking Group recently announced it was resuming dividend payments.
She added: “The bulk of the ‘giveaways’ announced in the Budget are being funded by the banks.
“To balance this slightly, there will be no obligation to deduct basic rate tax from non-ISA savings income from April 2016. It’s a huge administrative burden and difficult to get right.”
Treasury forecasts estimate that the increase in the bank levy – which was introduced in 2011 at a rate of 0.05 per cent – would bring in an extra £685m this year, rising to £925m in 2016-17.
Lynne Sneddon, tax partner for financial services at EY Scotland, said: “This is a three-fold increase in the bank levy in just four years and once again is anti-competitive for our own UK banks.
“It will hit UK headquartered banks hardest as it’s a tax on their entire global balance sheets, whereas foreign banks in the UK are only taxed on their UK liabilities. The constant tinkering with the tax regime for banks in the UK is unhelpful, and in the long-term unsustainable – the industry will definitely be looking for a commitment to a more certain tax environment in the future”.
Meanwhile, the move to prevent compensation payments being set off against corporate tax is expected raise an additional £150m this year for the public purse, increasing to £260m next year, before reducing to £225m in 2017-18.