EMERGENCY BUDGET: Bank levy to be introduced

22 June 2010 | By Natalie Thomas

He says the levy will generate over £2bn in revenue, but smaller banks and building societies will not be liable for the levy.

He says because the banking sector caused the credit crisis they should make an appropriate contribution to its recovery.

Osborne says it is considering a further tax based on the profits and remuneration of banks.

He says: “It will apply to the balance sheets of UK banks and building societies, and to the UK operations of banks from abroad. There will be deductions for Tier one capital and insured retail deposits, and a lower rate for longer maturity funding.”

Peter Maybrey, financial services tax partner at PricewaterhouseCoopers LLP says: “We are concerned that the proposed bank levy may have an adverse impact on the competitiveness of the UK as a financial services centre - in particular if the UK imposes the levy in advance of other major territories such as the US.  

“Other territories, whose banks have not been as adversely affected in the financial crisis, are likely to resist bringing in a similar levy. Canada, Australia, Japan and Switzerland may fall into this category.  This could lead to a migration of business activity from the UK to such other territories which either do not impose a levy or impose one at a lower rate than the UK.  

”One of the most difficult issues associated with the levy will be defining which institutions should be subject to the charge. As evidenced by the experience with the Bank Payroll Tax, defining what is a ’bank’ and ’banking type activities’ is not straightforward.”

Michael Coogan, general director of the Council of Mortgage Lenders, says: “We knew today’s Budget would be hard-hitting across the piece, so it is no surprise that housing has not escaped. We understand the tough choices that the government has to make - but obviously that does not mean they are attractive.

“In a world of imperfect choices, steps that help the economy to recover and help to maintain mortgage rates at affordable levels for most people are the measures that will underpin a healthy housing market in the long term. But in the short term pain is likely, as the effect of tax rises on household finances dampens the already fragile recovery in house-buyers’ confidence, housebuilding is affected, and support for housing costs across all tenures is curtailed.

“In housing terms this may be the “age of aspiration” as the housing minister said recently, but against an austere backdrop there is a long way to go before the supply of housing, or the ability of would-be home-owners to achieve their aspiration, are likely to show any significant pickup.”