George Osborne will dash hopes in the Square Mile of a Government retreat over its so-called bank levy despite HSBC’s threat to move its headquarters out of Britain.
The Chancellor is expected to reassure bank chiefs, however, that no further increases to the bitterly resented levy are in the pipeline – arguing that their tax burden has reached the appropriate level.
He will also use his annual Mansion House speech to announce plans to enshrine in law the new Government’s commitment to eliminating the deficit and moving the economy into surplus.
Mr Osborne’s speech follows the announcement by HSBC that it plans to scrap up to 25,000 jobs worldwide including as many as 8,000 in Britain. The Unite union protested that the HSBC workforce was being punished for the misconduct of its most senior investment bankers.
The Chancellor has faced pleas to reduce the levy from the banking sector, which argues that it is deterring foreign banks from investing in the UK and is making British financial institutions less competitive abroad.
The Lord Mayor of London, Alan Yarrow, told The Independent this week that the Chancellor should give a clear indication of “the direction of travel” for the charge.
In a letter to the Treasury, the British Bankers’ Association called for a “strategic review of the Government’s policy for taxing banks to ensure the tax regime for banking remains competitive”.
The major banks were dismayed when Mr Osborne sharply increased the levy, which is expected to raise more than £3bn this year, in his Budget in March. The tax cost HSBC £720m last year.
The bank, which has 1,057 branches in Britain, is aiming to make savings of between £2.9bn and £3.3bn by the end of 2017.
Mr Osborne will call for a new “fiscal mandate” to entrench in law the principle that governments should spend less than they collect in normal economic times.
He will argue that the move – which is modelled on similar successful initiatives in Canada and Sweden – will bring about “permanent change” in the approach of future governments of all political persuasions. The Tories’ manifesto set the aim of achieving economic surplus in 2018-19.
HSBC'S profits before tax
Mr Osborne’s step also sets a political trap for Labour, which pledged to cut the deficit every year and run a surplus on current spending “as soon as possible”.
Speaking at the Mansion House in London, he will say: “With our national debt unsustainably high, and with the uncertainly about what the world economy will throw at us in the coming years, we must now fix the roof while the sun is shining.
“Indeed we should now aim for a permanent change in our political debate and our approach to fiscal responsibility – just as they have done in recent years in countries like Sweden and Canada.
“The result of this recent British election – and the comprehensive rejection of those who argued for more borrowing and more spending – gives our nation the chance to entrench a new settlement.”
There will be a Commons vote this year on the new “fiscal framework”, which will be assessed by the Office for Budget Responsibility.
Mr Osborne will also announce that the Committee of the Commissioners for the Reduction of the National Debt, which was established by William Pitt the Younger, will meet next month for first time for 155 years.Reuse content