Osborne’s £800m raid hits banks
By Alex Stevenson and Ian Dunt
The City’s bankers found themselves £800 million worse off this morning after chancellor George Osborne unexpectedly hiked taxes.
The bank levy, a permanent annual tax rather than a windfall levy, was originally being phased in to the full 0.075% rate. This morning Mr Osborne scrapped the incremental rate with the full one, which will be backdated to the start of this year.
The Treasury’s 2011 take from the bank levy increases from £1.7 billion to £2.5 billion as a result.
“I think it’s a fair contribution from the banks to our economic recovery,” Mr Osborne told the Today programme.
Asked if the deal was politically motivated, Mr Osborne said: “No, it’s economics and the need to make sure the banks make a fair contribution to closing the budget deficit.
He added: “I’m still confident we can secure a deal with the banks on seeing an increase in lending to small businesses and see that bonuses are lower this year than last year.”
The chancellor said the announcement of the levy in last June’s emergency Budget had come at a time when the banks seemed weaker than they turned out to be.
“Now the banks know where they stand with taxation,” he added.
Regardless of Mr Osborne’s views on the motivation for the levy, it is likely to make life difficult for Labour, which has campaigned for a tougher approach to the banks since Ed Miliband took over as leader.
Recent reports suggest that Project Merlin, the process by which bank are trying to agree their role in a recovering British economy and participation in the ‘big society’, was not producing results which would impress the public.
Any agreement would also ensure bonuses are lower this year than they were last year. So far negotiations remain far from conclusive. Mr Osborne suggested a final deal may not take place.
“I’m not prepared to conclude a deal until I think it’s a good one for the British people and the British economy,” he added.
Reports that bank chiefs were “livid” in response to the news quickly circulated through the City.
Financial pundits had feared the bank levy seen last year could have been as high as £5 billion and many expressed relief that the tax which eventually emerged was in the mid-range of expectations.
Bankers will be upset by the hike, nonetheless. The reduced rate of 0.05% was supposed to apply throughout 2011 and this was levied in January and February.
To raise the year’s overall take to 0.075% the rate will be doubled to 0.1% in March and April, before returning to the stable 0.075% rate.
Unite general secretary Len McCluskey suggested bankers would respond to the news by opening champagne, however.
“The effort to present this bank levy as a punishment for the banks is pathetic, the money returned to the Treasury is a pittance, while bonuses are chucked around like confetti,” he commented.
“This levy does nothing to fundamentally reform banking in this country and effectively Osborne has been paid to go away. This is a shameful reflection of how lacking in muscle this government is prepared to be when it comes to holding the financial services sector to account.”
Labour’s shadow chancellor Ed Balls joined the unions in dismissing the bank levy as not going fast enough.
He would have preferred to see Mr Osborne adopt Labour’s plan of repeating last year’s £3.5 billion bank bonus tax in addition to the levy.
“With the economic recovery stalling we would use the money raised to help create the jobs and growth we badly need this year,” Mr Balls said.
“Without this bank bonus tax – and with the banks set to benefit from a corporation tax cut – George Osborne has actually delivered a tax cut for the banks compared to last year, even after today’s announcement.”
