LONDON (Reuters): Britain will largely replace a levy on bank balance sheets with a surcharge on profits in a move experts said would help quell talk among lenders of moving elsewhere to lighten their regulatory burden.
UK Finance Minister George Osborne offered further comfort to banks facing a welter of new rules since the financial crisis by asking their regulator, the Bank of England, to help keep Britain a “highly attractive” location for lenders.
The bank levy was introduced in 2011 in response to the financial crisis and applies to the global balance sheet assets of British banks as well as assets belonging to the UK operations of foreign banks.
It has raised over 8 billion pounds and is now expected to raise nearly four billion pounds annually.
Banks said the tax is unfair as it becomes more punitive when profitability falls. Europe’s biggest bank, HSBC, has said the levy will be a factor in whether it decides to keep its headquarters in Britain.
“I will, over the next six years, gradually reduce the bank levy rate, and after that make sure it no longer applies to worldwide balance sheets,” British Finance Minister George Osborne told parliament in his post-election budget. Applying the levy only to banking assets in Britain will benefit HSBC and Standard Chartered in particular as they have a high proportion of their assets overseas.
It also reduces the competitive disadvantage for UK banks against foreign rivals operating in Britain.
“But to maintain a fair contribution from the banks, I will introduce a new eight percent surcharge on bank profits from the first of January next year,” Osborne said.
The surcharge would be mitigated by a cut in corporation tax to 18% by 2019-20.
“By getting this balance right, it means we’ll actually raise more from the banks this parliament, but at the same time make our country a more competitive place to do business.”
Bank shares initially rose after Osborne’s announcement but later fell back.
“The bank levy is simply a bad tax. It pushes business away from the UK, and it penalises banks for engaging in low risk business,” said Dan Neidle, a tax partner at Clifford Chance lawfirm.