Debate Magazine

Solving One Problem by Causing Another.

Posted on the 21 July 2015 by Markwadsworth @Mark_Wadsworth

From Accountancy Live:
In his speech delivering the Budget, George Osborne said that the bank levy was introduced to raise revenue and increase the stability of balance sheets.
"And it’s worked – but now it risks doing harm unless we change it. So I will, over the next 6 years, gradually reduce the bank levy rate – and after that make sure it no longer applies to worldwide balance sheets. But to maintain a fair contribution from the banks, I will introduce a new 8% surcharge on bank profits from the 1st January next year," said Osborne.
The changes to the banking levy will bring in £1,6bn by 2020/21 and will affect UK banks, banking groups and building societies, foreign banking groups operating in the UK through permanent establishments or subsidiaries and UK banks and banking sub-groups in non-banking groups.

Ho hum.
Applying the bank levy/bank asset tax to worldwide assets of banks with a UK head office was a terrible idea from the start, so they are phasing it out. Good.
But why then take the retrograde step of making up the shortfall by taxing UK bank profits at 28% (i.e. normal corporation tax plus 8%)? All that will happen is that profits will be shuffled abroad again or reclassified as non-bank income taxed at 20%.
Far better to just leave corporation tax at 20%; restrict the bank levy to UK assets; and increase the rate significantly to soak up the 'rental' element of bank profits.

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