Budget: Bank levy out, 8 per cent surcharge in

Yesterday’s Summer Budget announcement was a mixed bag for bankers after Chancellor George Osborne announced that the government will “gradually” reduce the bank levy over the next six years, only to go to say that an 8 per cent bank surcharge on profits is to be introduced from New Year’s Day 2016.

The winding-down of the bank levy will mean it will no longer be applicable to worldwide balance sheets, however, delivering a sting-in-the-tail for the industry, Mr Osborne added: “Banks make a key contribution but they also need to make a fair contribution,” adding: ”Our bank levy risks doing harm unless it is changed.”

Amid claims that it hampers the competitiveness of UK institutions, the levy has come under withering attack from quarters across the industry since it was introduced by the Chancellor in an attempt to discourage lending in 2010 at a rate of 0.05 per cent.

And as recently as March, Mr Osborne used his budget announcement to increase it yet further from 0.156 per cent to 0.21 per cent and even hinted at raising it by another 50 per cent and making it a permanent measure.

Lynne Sneddon, financial services tax partner at EY Scotland, said: “A reduction in the rate and scope of the bank levy will be very welcome news for the sector, and can be seen as an acknowledgement from the government that the UK does need to remain a competitive location for global financial services companies.

“The introduction of an 8 per cent surcharge sounds high, but is likely to be more acceptable than the levy because it at least has a direct link to the profitability of an institution.”

Lindsay Hayward, financial services tax partner, PwC in Scotland said: “Banks, and in particular those with large overseas operations, are sure to welcome moves to create a ‘sustainable, stable and fair’ tax system for financial services and the reduction in the bank levy.

“The overall tax burden on the banking sector will go up during this Parliament , however, as a result of the new profits based 8% corporation surcharge and the long term phased nature of planned reform.

“Britain may be open for business, but when it comes to carrying out banking, these measures send a mixed message in terms of UK competitiveness for this sector.

Anthony Browne, chief executive of the British Bankers Association, said: “We welcome the Chancellor’s decision to amend the bank levy to reduce the damage it does to Britain’s biggest export industry.

“But introducing yet another new bank- specific tax will reinforce fears that Britain is becoming a less attractive place for banks to do business.

“This is the fifth new bankspecific tax measure in as many years following fast on the heels of the big rise in March and will increase banks’ tax burden by nearly £ 2bn.”