Borrowers could be hit by £2bn bank levy

25 June 2010 8:00 am | By Lee Jones

Experts have warned that customers may bear the brunt of the new £2bn annual bank levy.

In his first Budget this week, Chancellor George Osborne revealed a new annual tax of between 0.04 and 0.07 per cent on all banks, non-UK banks and building societies with liabilities of more than £20bn. Both France and Germany will also be implementing a similar tax on their banks.

The Chancellor said he is also looking at whether this levy should be supplemented with a financial activities tax on all financial institution’s remuneration and profit.

The Fat tax was proposed by the International Monetary Fund last month but IMF admitted that such a levy would “likely be passed on to purchasers of financial services”.

Datamonitor financial services analyst Daoud Fakhri says the levy, which Osborne said would “reflect the many risks that banks generate”, will exacerbate the current mortgage funding gap.

Fakhri says: “There were widespread concerns that the wholesale markets would not have recovered sufficiently to make good the £300bn lending gap. The new tax will only serve to further reduce the viability of this funding source.”

Others fear that it will be borrowers who bear the brunt of the levy. KPMG UK head of banking Nigel Harman says: “While there is a risk that the pressure on funding could ultimately restrict lending, it is more likely that banks will look to raise rates to attract additional retail funding in a highly competitive market. In an effort to maintain margins, these costs could be filtered through to consumers and small business loan rates, potentially putting additional pressure on the housing market.”

Fitch Ratings says it does not anticipate any impact on UK or global bank ratings from the new levy and expects that Nationwide will be the only society liable for the levy.

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