Banks face £2.5bn new tax
Wednesday 20 October 2010
Britain's new £2.5 billion a year permanent bank tax will take a step forward when draft legislation is published tomorrow, the Chancellor said today.
George Osborne said he wants the levy, first announced in the June emergency Budget, to raise the "maximum sustainable revenues" without driving banking groups out of the UK.
More details will emerge tomorrow when the legislation is presented ahead of its planned introduction on January 1.
The move aims to raise around £2.5 billion a year by forcing banks to pay penalties based on their net worth, seen as more a tax on risk rather than profits.
Mr Osborne said banks should share the pain of measures to repair the deficit caused by the financial crisis.
But he said the Government "neither want to let banks off their fair contribution, neither do we want to drive them abroad".
He added the levy will "raise more each and every year" than the Labour Government's one-off bonus tax earlier this year, which charged 50% on all windfalls above £25,000 - raising over £2 billion.
Mr Osborne also confirmed all UK banks will be asked to sign up to a tax code of conduct by the end of next month.
Only four out of 15 banks have signed up to the code under which they agree not to design avoidance schemes to reduce their bills or those of their clients.
Final legislation is due by the end of the year, while the Treasury added it was continuing to work with international partners on a financial activities tax on profits and pay.
The developments come as experts predict UK bank bonuses will reach around £7 billion this year after the sector's marked recovery since the credit crunch.
US players such as Goldman Sachs and JP Morgan Chase have already revealed bumper pay and salary pots earmarked for staff after a better-than-expected third quarter.
The British Bankers' Association (BBA) said banks "fully understand they have a role to play in the UK's economic recovery".
It added: "Decisions taken today will have an effect on the whole industry and to remain competitive, UK policies need to be in step with those elsewhere.
"Financial services currently contribute around £24 billion in taxes every year so we are pleased the Chancellor said he wishes to balance taxation with the attractiveness of the UK as a global financial centre and the need to retain jobs."
The annual bank levy was unveiled in June as part of a joint move by the UK, France and Germany.
The tax will apply to banks and building societies, as well as foreign banks with UK operations, although it is not set to apply to those with balance sheets of less than £20 billion.
Initial details in the summer Budget showed the levy will be charged at a lower rate of 0.04% in the first year - generating an expected £1.15 billion - rising to 0.07% or £2.3 billion in 2012-13 and up to £2.5 billion in 2013-14.
It is thought that tomorrow's legislation will clarify whether there will be double tax relief to ease the burden on banks with operations in other countries where the levy applies.
The Treasury said: "The Government wants the UK to be one of the most competitive global centres for financial services.
"But it is only right that during difficult times, steps are taken to ensure that the banks make a full and fair contribution."
The tax code of conduct deadline will also ensure banks "comply with both the letter and the spirit of the law and not to engage in or promote tax avoidance", said the Treasury.
It was introduced last year by Labour, but has had poor take-up so far.
Taxpayer-backed Royal Bank of Scotland and nationalised Northern Rock are thought to be two of the four which have signed up.
But there are fears Mr Osborne's tough measures on the banking sector could lead to an exodus of players, with groups such as HSBC and Standard Chartered signalling potential willingness to quit the UK.
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