The chancellor has launched a £5.3bn tax raid on banks, in a move that is likely to hit HSBC the hardest after it was heavily criticised in recent weeks over the tax evasion scandal at its Swiss private bank.
George Osborne said a recovery in banks’ profitability since the crisis meant they could make a “bigger contribution to the repair of our public finances” as he announced a more than one-third increase in the bank levy.
The chancellor lifted the levy from 0.156 per cent of banks’ liabilities to 0.21 per cent, which he said would raise an extra £900m a year.
Mr Osborne’s pre-election swoop, by far the biggest rise in the bank levy since it was introduced in 2011, brought howls of protest from the City of London.
“The bank levy imposes a significant cost on banking businesses in the UK, which is making many banks move work and jobs to other parts of the world, and is deterring international banks from investing in the UK,” said Antony Browne, chief executive of the British Bankers’ Association.
“This major increase in the bank levy is likely to accelerate that process and damage the competitiveness of the UK economy.”
Mr Browne said banks already paid £40bn of taxes a year.
Mr Osborne also said that banks would no longer be able to offset the cost of compensating customers for issues such as mis-selling payment protection insurance from their corporation tax bills.
Together, the chancellor estimated both measures would raise an extra £5.3bn by 2020. “The banks got support going into the crisis, now they must support the whole country as we recover from the crisis,” he said.
British banks have put aside more than £24bn for payment protection insurance (PPI) mis-selling and billions of pounds to cover the cost of other scandals, such as interest rate swap mis-selling.
The level of PPI provisions peaked two years ago, so the ban on offsetting them against corporation tax is not as painful as it would have been if it had been introduced earlier.
Mr Osborne has raised the rate of the levy eight times — from an initial 0.075 per cent — because it has consistently undershot his target of collecting £2.9bn a year from the 30 banks and building societies that are liable to pay it. The Office for Budget Responsibility forecast the levy would raise £3.7bn a year from 2017-18, up from £2.8bn in the fiscal year to this April.
The tax, branded “a location levy” by British lenders, is levied as a percentage of total global liabilities. Foreign banks also contribute, but pay only a percentage of their UK liabilities.
“There is a saying in tax circles that raising taxes is like plucking feathers from a goose — you should not make it shriek — but this is going to cause some shrieking,” said Tom Aston, a tax partner at KPMG. “It is a huge slap in the face for the banking industry”.
Last year the biggest single contribution came from HSBC, which has the biggest balance sheet of any bank in Europe and said its contribution rose more than a fifth to $1.1bn last year. Barclays was the second-biggest contributor, paying £462m.
“There may be an element of punishment for HSBC’s perceived tax evasion, however unfair that may be,” said Mr Aston. HSBC, which earns most of its profits in Asia, has been reeling since reports last month that some of its Swiss clients were offered services in 2005-07 to help them dodge taxes.
Matthew Barling, PwC banking tax partner, said: “For a sector already under pressure in terms of profitability as a result of regulatory change and other demands, a further £900m increase in the bank levy will be felt acutely.”
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