The City barely shrugged yesterday despite the Government's publication of draft legislation to take £2.5bn a year from banks through the banking levy.
Shares in the banks were all but unmoved, with HSBC, which analysts said could be one of the worst affected by the new tax, actually finishing ahead by 10.04p at 670.4p. Lloyds was barely changed at 70.36p, a rise of 0.06p. Barclays (5.15p lower at 285.95p), Standard Chartered (33.5p lower at 1908.5p) and Royal Bank of Scotland (45.56p, off 0.44p) lost ground, but none fell by more than 2 per cent.
Brendan Barber, leader of the Trades Union Congress, spoke for many critics who felt that the levy was a damp squib, saying: "This is a pathetically small amount to demand. Ministers have come up with the smallest number they think they can get away with, even though the banks are carrying forward £19bn of tax losses to offset against future tax bills."
The Treasury has yet to reveal the exact figures on the tax, saying only that it will raise £2.5bn a year from 2012, after a phased introduction through next year. Analysts have already said that the partly state-owned Lloyds and Royal Bank of Scotland will be better off because, notwithstanding the levy, based on their balance sheets, corporation tax is coming down from 28 per cent to 24 per cent.
Other changes since the lengthy consultation with lenders in the summer include changing the £20bn threshold at which the levy was liable to include an allowance for smaller banks. The levy rate on uninsured customer deposits is being cut and the definition of a "banking group" has been tweaked. Now, if more than 50 per cent of a company's activities are non-financial, it will not be classified as a bank, exempting insurance companies and others.
Mark Hoban, the Financial Secretary to the Treasury, said the levy meant that lenders would "make a fair contribution in respect of the potential risks they pose to the UK". "[It] incentivises banks to make greater use of more stable financial sources," he added.
But David Buik, a partner at BGC Partners, said: "The devil is in the detail. We really need to know how the double-tax issue with other territories imposing levels will be handled, and whether the levy will be sufficiently draconian to force banks to move headquarters."