Bank shares rise after 'getting off lightly' on new levy

The government levy on banks aims to raise £2.5 billion by 2012-13.

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by Rob Mackinlay on Oct 21, 2010 at 11:25

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Bank shares rise after 'getting off lightly' on new levy

Shares in the banking sector were on the rise this morning after the Treasury announced that it aimed to raise £2.5 billion from its levy on banks by 2012-13.

Mark Hoban, financial secretary to the Treasury, said that the levy was designed to ensure ‘that banks make a fair contribution in respect of the potential risks they pose to the UK financial system and wider economy’.

Michael Hewson, market analyst at CMC Markets, said: ‘If that’s all its going to cost them then they’ve got off lightly, and they know it.’ HSBC shares were up 1.6% at £6.70.

The main items highlighted by the government included the decision to have a £20 billion pound allowance to replace a £20 billion threshold after which banks would be eligible to pay the levy. The new rule means that the tax - of 0.007% - will only apply to equity and liabilities beyond the £20 billion allowance rather than the whole value. So a bank worth £20.1 billion would pay the tax on the £0.1 billion, rather than on £20.1 billion.

The government explained the reasons for the change in a consultation response which suggested that banks would avoid growing beyond the threshold: ‘Respondents were generally of the view that the threshold would create potent incentives for banks around the margin to structure their business in certain ways, or disincentives to grow, in order to avoid crossing the threshold.

It said: ‘Some argued that the threshold would probably not achieve any higher yield than an allowance because of these effects. The Government accepts this argument and has therefore decided that there should be an allowance on the first £20 billion of liabilities liable to the Levy.’

In a statement after the Treasury's announcement, the British Bankers' Association said the levy would have a 'significant impact'.

'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,' the BBA said.

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5 comments so far. Why not have your say?

Whatever the merits are in imposing a special levy/tax on UK banks it will be very likely that the two large UK banks not part owned by the UK Govt.,, will have to seriously re-think their structure internationally. The decision has been made to make the levy on worldwide balance sheet activities rather than just the UK balance sheet. This might well lead to multiple taxes being levied on the same worldwide business. I would imagine that Barclays and HSBC in particular may well now consider splitting their business into separate ownership with headquarters odffshore.

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The more our Govt keep leaning on the banks the longer it takes for the shareholders to make a handsome profit on their holdings in the banks and the longer it takes for banks to resume "normal" lending. A healthy banking sector means bumper tax contributions even if most do their best to minimise what they actually pay. Osborne has made it clear that he does not really understand what drives an economic recovery but that is the result of his education. The main problem is te albatross round the neck of the Conservative party their grubby finger prints are all over this populist recovery package.

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May I respectfully point out that ALL have the option of moving abroad for tax reduction purposes?

As an old age pensioner with a modest pension income (but taxable) I would be considerably better off in a number of EU countries where the tax regime is more sympathetic to the aged.

The British Government would still have to pay my OAP, but I would pay tax at the local rate (which in many cases could well be much less).

The government would also miss out on the tax that I already pay and will continue to pay on the pensions I receive.

If it comes to what some might see as a bit of the old "arm twisting" we can all play that game. OAPs, let's take our wealth abroad and empty the financial pots of this country! Please rearrange these three words -"bankers, bugger, the" into a possibly well known phrase or saying..

Incidentally, I use Nationwide, which is a Building Society.

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I don't see the point of a Bank Levy. The banks will only pass the cost on to us, their customers, in the form of increased charges and a wider interest rate spread between savers and borrowers, just like they did with the Bank Bonus Tax.

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JohnKenyon

Oct 25, 2010 at 11:47

In general the way the banks have been treated is very poor. To state it is all political is no justification. To penalise banks that have taken nothing from the govt is clearly unjust and to risk their moving business outside the UK is foolish.

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