Details of a permanent levy on banks expected to rake in £2.5bn a year by 2012 were unveiled by the UK Treasury.
Draft legislation was published designed to fulfil Chancellor George Osborne’s pledge during the Comprehensive Spending Review to “extract the maximum sustainable tax revenues from financial services.”
The levy, outlined in June, will tax the global balance sheets of UK banking groups and the UK operations of overseas banks.
The Treasury has insisted the legislation will encourage banks to take fewer funding risks amid widespread anger over the banking sector’s role in the economic crisis.
But union leaders said the measures fail to go far enough and accused the government of instead targeting the poor and middle income earners.
“Ministers have come up with the smallest number they think they can get away with, even though the banks are carrying forward £19bn of tax losses to offset against future bills losses that have been bailed out by the taxpayer,” said Brendan Barber, general secretary of the TUC.
“Those who caused the recession will be cracking open the champagne today, while the full extent of the attacks on the living standards of poor and middle-income Britain are starting to sink in.”Two objectivesTreasury financial secretary Mark Hoban said the scheme has two objectives.
He said, “Firstly, ensuring that banks make a fair contribution in respect of the potential risks they pose to the UK financial system and wider economy.
“Secondly, the final scheme design incentivises banks to make greater use of more stable financial sources, such as long term debt and equity, working with the grain of our wider reform programme.”Scottish banks stay quietScotland’s largest banks, the Royal Bank of Scotland and HBOS, declined to comment on the levy, but the British Bankers’ Association said banks are committed to “playing their part” in the UK’s economic recovery.
“That includes helping to meet the greater demands on the Exchequer,” said a statement issued by the organisation, which represents more than 220 financial institutions around the world.
“The banking industry paid more than £26bn in taxes last year and the bank levy will increase this figure. We will work with the Treasury to ensure the final levy also meets the aim of maintaining the UK’s position as the world’s financial centre while generating additional tax revenues.”
The levy will be a tax on the total size of bank balance sheets, but certain items, including retail deposits covered by insurance and bank capital, will be excluded.
The rates have not been finalised, but will be less than 0.1%. Uninsured retail deposits will be subject to a half rate.
June’s emergency budget documents suggested it would be set at 0.04% in the first year and rise to 0.07%.
The government has insisted it is also taking action on large bank bonuses.
The Independent Commission on Banking has been set up to look at reform.
Photo courtesy of Stewart Lloyd-Jones.