Chancellor Osborne accused of giving UKís biggest banks ësecret tax cutí
The UKís major lenders are set to be given a tax cut that is forecasted to be worth hundreds of millions of pounds, under planned modifications to the bank levy that have been incurred due to frequent complaints by the industry about disproportionate obligations on domestic institutions.
Lending giants Barclays and HSBC could be entitled to a combined levy charge reduction of over £300 million, if the Treasury decides to follow through with provisional proposals to move to a band-based system of taxation, which would see the implementation of an upper threshold for the amount any single bank can be taxed.
A new formal conference on the provisional measures announced on Wednesdayís budget will start this week; with it believed that the government is pushing for an upper charge of £375 million. This would see the top countryís biggest banks paying a substantially smaller sum on their tax, whilst foreign banks would be faced with a far higher levy than they are currently paying.
ëSecret tax cutí
Nevertheless, the passage of the new measures will likely be faced with a number of obstacles before being officially implemented, with opposition politicians already taking issue with their substance and the impact that they will have on already stuttering levels of tax revenue.
Cathy Jamieson, Labourís shadow financial secretary, branded the new measures a ësecret tax cutí for big banks, and accused the Chancellor of pushing the fences yet again by lowering the sum they pay from the obligatory levy.
She highlighted that tax revenue from banks had already sharply declined in recent times due to the current administration consistently lowering the obligations they are having to pay, and called for the Chancellor to clearly identify what affect the future cuts would have on overall tax revenue before officially instigating the change.
ìThis looks like a secret tax cut for the big banks hidden in George Osborneís Budget. The bank levy has already raised billions less than was originally promised. George Osborne must come clean and explain what impact this banding will have on revenues from the bank levy in future years,î said Ms Jamieson.
Foreign banks set for blow
The new measures are planned to be implemented at the beginning of 2015, and will divide banks into 5 different bands, whose members be determined by the composition of each banks balance sheets.
Banks that have balance sheets that are lower than £20 billion will have to pay nothing towards the levy, whilst anyone with applicable assets between £160 billion and £320 billion will have to pay a levy charge of £375 million.
This would see the countryís largest banks such as Barclays and HSBC, who paid £504 million and £544 million respectively last year towards their levy charge, make a considerable saving on their tax, and represents a remarkable turnaround in their prospective fortunes with it being widely speculated that the levy was set to actually rise by 20% this year, rather than decrease.
The double boost given to large banks through the levy reduction and the contrary direction it moved compared to first thought has encouraged a leading tax expert from Deloitte to forecast that the new measures will actually save large banks closer to £400 million each year, rather than the £100 million or so they are set to be given.
He predicted that the costs of giving large UK banks tax relief will likely be subsidised by foreign banks in the country, who will have to pay a larger share than they have being doing so at present.
ìThe issue with lowering the tax on some of the biggest banks is that the Treasury has to make up the difference somewhere else and that more than likely means raising the cost to international firms; some could see a big increase in their share of the cost,î said Wayne Weaver, UK banking tax leader at Deloitte.
Tom Aston, head of banking tax at KMPG, echoed this sentiment, and argued that it was an intelligent and politically motivated move to appease the countryís large banks but also give the impression to the public that the government is not being ëtoo softí on banksí.
ìThe government will not want to appear soft on taxing the banking industry, but if the latest proposals are intended to please the UK banks then there is a significant burden to be redistributed onto foreign institutions,î he said.
ëThree year cycle would be sensibleí
Data found by a study conducted by the KPMG indicated that over 70% of the levy is currently being paid by the UKís banks. Last year, the government set a goal of reaching £2.5 billion from the levy, but only obtained around £1.6 billion.
The lack of full payment has been attributed to a frequent decrease in the balance sheets of the countryís banks compared to the size of the levy, and this has resulted in the Treasury raising the value of the levy seven times since its inaugural instigation back in 2010.
Last year, the Treasury held a meeting with representative of the countryís biggest banks following a period of widespread discontent from banks about the persistent hikes in the rate they were being forced to pay on the levy.
And the Chancellorís announcement of the new levy structure is most likely a direct response to this meeting, with the government being keen to encourage the expansion of UK-based banks that are pivotal for the countryís economic recovery.
ìThis new consultation looks to me like some banks are still unhappy with the burden that falls on them and have pushed for a more radical change to the way it is calculated,î said Mr Weaver.
He added: ìMoving to bands will certainly help on the administrative side, though if the bands are changed frequently along with the charges then it wonít provide the predictability the industry is looking for. I think a review on, say, a three-year cycle would be sensible.î
The Treasury has identified that it is aiming to consistently raise the revenue they take in from the levy, and highlighted its aim to acquire £2.9 billion from it by the 2015/2016 year. It did promise a number of changes in the future to the levy, in order to make it more ësustainableí and effective at yielding revenue.
A spokesperson for the Treasury said: "The bank levy is forecast to raise £2.9bn a year from 2015-16 according to the independent OBR and the government has no plans to reduce the amount of money the levy raises."
He added: "The consultation, announced at Budget last week, will look at ways to make the levy more predictable and sustainable moving forward. The suggested changes will not impact on the target yield from the levy, which is designed to ensure that the sector makes a fair contribution."