The changes, announced by George Osborne, Chancellor of the
July’s Summer Budget, include a new 8%
surcharge that will be applied, from the beginning of 2016, to
bank profits above £25 million ($38 million), while the
UK’s bank levy will be gradually phased out.
The latest wave of opposition to the new measure comes after
an EY report, released Monday [September 7], warned that the
tax take from the new surcharge could be double the amount
forecasted by Treasury.
Anthony Browne, chief executive of the British Bankers
Association (BBA), said many of his members fear the
introduction of the bank corporation tax surcharge will affect
the competitiveness of the UK as a centre for banking.
"It’s vital that the UK is seen as a stable and
welcoming place to do business," he said.
"Greater certainty over when the bank levy and the surcharge
might cease to be in force is needed," added Browne.
According to Osborne’s Budget speech, the bank
levy will be reduced gradually over the next six years.
Originally introduced in 2011 as a response to the financial
levy on bank balance sheets has been used as a recurrent
budgetary tool, rising nine times since its inception.
When Osborne announced in July that the bank levy had
achieved its aim of raising revenue and increasing stability
and that "now it risks doing harm", financial institutions
briefly rejoiced, only to learn moments later of the plans for
a new profits surcharge.
Government forecasts show that bank tax revenues will reach
£4.3 billion in 2017-2018 as the new surcharge hits,
falling to £3.5 billion by 2020-2021 as the bank levy
But the opposition Labour party has been quick to criticise
the government’s approach to taxing the financial
"The new policy signals a worrying change in the
government’s approach towards bank taxation," said
Alison McGovern, shadow City Minister, in an article for City AM.
McGovern said the government’s policy "risks
stifling competition and acting as a restraint on sensible
"The planned scaling down of the [bank] levy and its
replacement with a new 8% surcharge on bank profits will act as
a tax rise for small challenger banks and building societies,
who pose less risk to our economy, while the big international
banks get a much better deal."
Smaller banks and challenger banks harbour concerns that the
surcharge will hinder their expansion plans.
"The unfairness of this approach is only dwarfed by its
irresponsibility," said McGovern.
Chris Leslie, shadow chancellor, also weighed in, saying the
proposals "could harm competition and diversity in the sector
– the very things he once briefly claimed to
Andrew Tyrie, Conservative MP and chairman of the House of
Commons Treasury Select Committee, has previously warned of
"unintended consequences", telling the FT that: "anything
which reduces banking competition reduces the scope for new
entrants into a market that is not widely held to be
sufficiently competitive and would not be in the interests of
Finding clarity amid mixed messages
Getting this policy right is important because global
mobility means institutions may take their business elsewhere
if the measures are considered overbearing.
Standard Chartered and HSBC have both made loud noises about
leaving the UK as a result of financial sector tax policy
changes implemented by Osborne in recent years. Both banks have
said they will make a decision about their future headquarters
by the end of this year, but the removal of the bank levy,
replaced with a repositioned profits surcharge, appears to be
aimed – at least in part – at appeasing the
likes of HSBC.
"The reform and reduction in the bank levy will be welcomed
particularly by those banks with large overseas operations,"
said Matthew Barling, banking tax partner at PwC, in response
to the Chancellor’s Summer Budget. "However, the
long term phased nature of the reform coupled with the new
profits-based 8% corporation tax surcharge means the overall
tax burden on the banking sector will go up during this
parliament. This sends very much a mixed message in terms of
competitiveness of the UK as a place for carrying on banking
The move already seems to have worked on HSBC. As part of a
rebranding, undertaken in line with incoming regulations
requiring lenders to segregate their retail operations, the
bank this week announced that from 2018 its ring-fenced bank
will be called HSBC UK.
"It soon became obvious that everyone preferred a name that
maintains a strong connection to HSBC, and a clear commitment
to the UK," said a memo from Stuart Gulliver, HSBC chief