Bankers' fear of multiple taxation on global activity

BRITAIN's banks pledged yesterday to deliver the government's new £2.5 billion annual banking levy, but raised fears it could leave global players vulnerable to multiple taxation on the same activities.

• Osborne made the announcement yesterday during the Comprehensive Spending Review

The British Bankers' Association (BBA) voiced its concerns as the Treasury published draft legislation on the tax - designed to ensure banks repair some of the damage caused by their role in the financial crash.

The levy will apply charges to the global balance sheets of UK banks and the British operations of foreign lenders.

Unveiling the draft legislation that is expected to generate 2.5bn annually by 2012-13, Mark Hoban, financial secretary to the Treasury, said: "The scheme achieves two objectives: firstly ensuring that banks make a fair contribution in respect of the potential risks they pose to the UK financial system and wider economy.

"Secondly, the final scheme design incentivises banks to make greater use of more stable financial sources, such as long-term debt and equity, working with the grain of our wider reform programme."

But the BBA said questions were being raised by the UK proposing to apply tax to a global balance sheet.

The banking trade body said: "The Treasury's statement is largely silent on how this levy would interact with taxation in other countries.

"Until this is clearer, some banks could be taxed multiple times by multiple jurisdictions on the same activities. There is also no international consensus on how banking activities should be taxed. The G20 members still hold very different views."

It stressed that banks were committed to playing their part in restoring the UK economy "and that includes helping to meet the greater demands on the Exchequer".

But the BBA noted that the levy applied not only to UK banks but also to the 200-plus overseas banks operating in the UK. "Changes to the detail have been made during the consultation period but inevitably the levy will have a significant impact," the BBA said.

Unveiling 80bn of spending cuts on Wednesday, Chancellor George Osborne ratcheted up the rhetoric on banks, pledging to seek the "maximum sustainable" revenue from the financial sector.

The levy will replace the previous Labour government's one-off bonus tax introduced earlier this year, which charged 50 per cent on banking bonuses over 25,000, raising over 2bn.

But apart from the confusion surrounding the potential for multiple taxation of banks, opinion was split yesterday on whether the coalition government had gone far enough.

Philip Booth, editorial and programme director at the Institute of Economic Affairs, accused the government of being "disingenuous".

"The burden of this levy will be felt by banks' owners and customers," he said. "Ultimately those who will pay are shareholders - in other words potential pensioners and other savers - and the users of financial services.Every man and woman in the country will bear the cost of this tax."

Rob MacGregor, chief executive of the main banking union, Unite, said: "This financial levy to balance sheets will raise nowhere near the appropriate tax and only cost the banks a fraction of the fairer Robin Hood tax on their transactions."

Shares in the big UK lenders were little changed last night.