The UK recently said that it will increase its annual bank levy by more than a quarter to £3.7 billion.
The bank levy, which is an annual tax on the value of all the debts in UK banks, will increase from 0.156% to 0.21%.
“This will raise an additional £900m a year,” said Chancellor George Osborne in his Budget statement.
Banks will face higher costs and may be tempted to move their headquarters elsewhere.
However, the BBA said that the levy increase will “impose a significant cost on banking businesses in the UK”.
Levy increase said to hit UK headquartered banks hardest
BBA chief executive Anthony Browne said:
“Banks in the UK already pay more than £40bn in taxes each year, helping to fund schools and hospitals across the country.”
“This [levy increase] will also further disadvantage UK headquartered banks by increasing tax on their overseas activities, while their competitors in those markets do not pay this tax at all.”
Investors at Standard Chartered and HSBC have pressured the banks to consider moving out of London, and this levy increase is only expected to increase the pressure.
The two companies will now be facing much larger costs.
“At some point, the environment becomes so unfavourable that everyone shifts wholesale to somewhere else,” Stuart Adam, senior research economist at the IFS, told reporters Thursday.
“If I was a bank boss I’d also be remembering that the government introduced a measure that will stop me offsetting losses from the crisis against more than half of profits. I’d be wondering: what’s the next restriction that’s going to be introduced? And that risk could put me off making investment decisions.”
Anna Anthony, a taxation expert at Ernst & Young, told the BBC:
“It will hit UK headquartered banks hardest, as it’s a tax on their entire global balance sheets, whereas foreign banks in the UK are only taxed on their UK liabilities.”
“The constant tinkering with the tax regime for banks in the UK is unhelpful and, in the long term, unsustainable – the industry will definitely be looking for a commitment to a more certain tax environment in the future.”