City wary of new banking tax
A new tax on Britain’s banks has fuelled disquiet in the City as the coalition government sharpened its rhetoric.
City figures had expressed relief after escaping with a bankers’ levy worth just £2.5 billion a year in the emergency Budget.
Last night Treasury minister Mark Hoban told the British Bankers’ Association annual industry dinner at Mansion House a financial activity tax was being considered which would target profits and remuneration.
The move, being explored at present, could double the total amount of tax levied against the banking sector. Separately the Financial Services Authority watchdog has been asked to examine “further options” as it continues its review of bankers’ bonuses.
“We have the opportunity to send a clear message to the public that the banking system now operates in a way that is fair and stable and no longer rewards employees based on short-term performance whilst leaving investors and taxpayers exposed to the long-term risks,” Mr Hoban said.
“It is better for the industry to lead these changes.”
Separately a consultation has been launched today on the banking levy, which was widely viewed as being significantly less stringent than had been feared by many.
It could be revised upwards as well as downwards, however, as the government considers “technical aspects” of its design and implementation.
Meanwhile banks face ongoing uncertainty about whether they will be forced to set up ‘resolution funds’ helping protect customers from further systemic failure.
Mr Hoban indicated that the government is not prepared to let the issue lie, insisting that progress should be made this year for large interconnected institutions.
“Systemic firms must be able to demonstrate that they have credible plans for recovery in a crisis,” he insisted.
Experts say Britain has aligned with Germany and France rather than the United States on the issue, backing the German view that finance should be “boring and safe”.
Jan Randolph of IHS Global Insight told politics.co.uk issues relating to the fund were far from resolved.
“It’s a little bit token because banks have got so big that when the next crisis comes, will the fund be large enough?” he said.
“In Germany they want to keep it to a designated untouchable fund – whereas France, the UK and Ireland prefer it to go until the big Budget pot. So it can get lost.”
