Osborne’s Budget is bittersweet for the banks

The City welcomed cuts in banking levy but is dismayed by new tax. Picture: Getty
The City welcomed cuts in banking levy but is dismayed by new tax. Picture: Getty
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BRITAIN’S banks cheered the Chancellor’s move to sharply reduce the bank levy over the next six years – but were dismayed by the sting in the tail of a new 8 per cent surcharge on the industry’s profits.

The surcharge kicks in on 1 January and will see banks pay an extra £2 billion in taxes over the next five years.

In addition, it was announced that, from January 2021, the levy will only be charged on size of the domestic balance sheets of lenders based in the UK, not on their worldwide operations.

Anthony Browne, chief executive of the British Bankers Association, said: “We welcome the Chancellor’s decision to amend the bank levy to reduce the damage it does to Britain’s biggest export industry.

“But introducing yet another new bank-specific tax will reinforce fears that Britain is ­becoming a less attractive place for banks to do business.

“This is the fifth new bank-specific tax measure in as many years following fast on the heels of the big rise in March and will increase banks’ tax burden by nearly £2bn.”

Lynne Sneddon, financial services tax partner at EY Scotland, said: “A reduction in the rate and scope of the bank levy will be very welcome news for the sector, and can be seen as an acknowledgement from the government that the UK does need to remain a competitive location for global financial services companies.

“The introduction of an 8 per cent surcharge sounds high, but is likely to be more acceptable than the levy because it at least has a direct link to the profitability of an institution.”

The gradual reduction in the bank levy follows its introduction by George Osborne in 2010 to make the sector play its part in shrinking the public deficit after the financial crisis resulted in a series of taxpayer bailouts. It has raised billions of pounds for the Treasury.

It comes after banking giant HSBC’s public warning earlier this year that it was formally considering moving its global HQ from the UK because of increasing regulatory burdens.

Meanwhile, the Red Book published alongside the Budget revealed that the Treasury plans to sell at least three-quarters of its 78 per cent holding in Royal Bank of Scotland in the next five years, raising an expected £25bn.

It said: “Over the course of this Parliament, the government will dispose of at least three-quarters of its stake in RBS, starting with a sale in the coming months.”