(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own)
By George Hay
LONDON, Dec 5 (Reuters Breakingviews) - The UK’s hike in its
bank levy shows a lack of joined-up thinking. The coalition
really wants the country’s biggest banks to support the UK’s
misfiring economy by lending more. Its latest tax grab
incentivises them to lend less.
Instead of paying a 0.105 percent rate on their liabilities
as of Jan. 1, banks will now pay 0.13 percent. The stated reason
is that as UK banks deleverage the tax take will fall, not
helpful when the government wants to help its deficit reduction
strategy by raising at least 2.5 billion pounds through the
charge every year. But there are two problems with this way of
The first is that elsewhere in government the banks are
being implored to lend. The Bank of England’s “Funding for
Lending” scheme gives banks cheap funding if they increase their
net lending, or at least hold it steady. The bank levy,
originally a clever way to encourage banks to reduce their risky
short-term funding, incentivises them to shrink.
The second flaw is that the Treasury is insisting on a
bigger hike than is needed to raise 2.5 billion pounds. In
2013/14 the tax will raise 2.8 billion pounds, and 2.9 billion
pounds the year after. The Treasury’s motives are political: the
government has a second, less well-known target to raise 10
billion pounds from the levy over the life of the parliament,
and has raised only 1.8 billion pounds in the last two years.
Clearly any suggestion of giving banks an easy ride is a
tough sell, and the UK did cut corporation tax on Dec. 5. But
persisting with a policy that means banks like Royal Bank of
Scotland (RBS.L) and Lloyds Banking Group (LLOY.L) find it
harder to make profits, and thus want to grow their balance
sheets, is wrong-headed. And going harder than is strictly
necessary just to stick to a target no one really cares about
anyway is just silly.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- The UK bank levy is to be increased from a 0.105 percent
charge on their short-term liabilities to 0.13 percent from the
beginning of January, Chancellor George Osborne announced on
- The new rate means that the levy is intended to raise 2.8
billion pounds in 2013/14 and 2.9 billion pounds in 2014/15. In
2011/12 and 2012/13 it raised 1.8 billion pounds, according to
the UK’s Autumn Statement.
- In the UK’s 2012 budget the government said the levy
should aim to raise at least 2.5 billion pounds a year. The levy
has been set at a rate above 2.5 billion pounds to enable the
government to stick to a second commitment to raise 10 billion
pounds from the levy over the life of the current parliament,
according to a person familiar with the situation.
- For previous columns by the author, Reuters customers can
click on [HAY/]
(Editing by Chris Hughes and David Evans)
Keywords: BREAKINGVIEWS BRITAIN/LEVY
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