The UK government on Tuesday forged ahead with plans for a new bank levy to raise ? 2.5 billion annually, shrugging off industry concerns that it will put the UK at a disadvantage to other countries that haven’t introduced similar taxes.
The levy, which will apply to roughly 30 to 40 UK banks, building societies and UK operations of foreign banks, was outlined in June by Chancellor of the Exchequer George Osborne.
The UK government prescribed a threshold for banks to be brought under the tax net, which is higher than India’s ICICI Bank’s size of operations in that country. ICICI Bank concerned over the impact of a tax on its UK operations is relieved that if the current proposals are implemented, it won’t have to pay any tax.
It is designed to reflect the potential risks they pose to the UK financial system and economy, and to reduce the use of risky funding that helped trigger the financial crisis.
Some banks say the levy could put them in a weaker position against peers not subject to levies in their home countries, and the British Bankers’ Association, an industry body, has also expressed alarm that banks based in UK could become less competitive, since the levy, as well as tighter rules on pay and bonuses, hasn’t been adopted globally.
In its Tuesday consultation paper about the planned tax, the government suggested it would like to see more countries follow suit, in addition to France and Germany, which also agreed in June to implement a similar tax.
?This government recognises the need for global co-ordination wherever possible. We have already joined with the governments of France and Germany in announcing the introduction of bank levies based on banks? balance sheets, and the UK levy is based on the IMF’s proposals. We will work with our international counterparts to examine concerns about double taxation,? said Mark Hoban, financial secretary to the Treasury. Hoban in a speech on Monday said the government is also considering additional taxes on financial companies’ profits and remuneration.
The levy comes into effect on January 1, 2011, and will initially be at an 0.4% charge on balance sheets. From 2012, the charge will rise to 0.7%. An industry consultation is now open until October 5.