Chancellor George Osborne says the Government will “gradually” reduce the bank levy over the next six years but plans to hit the sector with a new charge on profits.
Under proposals laid out in the Budget, the bank levy rate will decrease from 0.21 per cent to 0.18 per cent from 1 January 2016 and will continue to fall until it reaches 0.10 per cent in 2021.
However, an 8 per cent bank surcharge on profits will be introduced from 1 January next year.
These changes will create “short term pain” as both charges will overlap in the coming years, according to Hargreaves Landsdown senior analyst Laith Khalaf.
BBA chief executive Anthony Browne says another new bank-specific tax will also make Britain “a less attractive place for banks to do business”. He says the new tax measure will increase banks’ tax burden by nearly £2bn.
Browne says: “We believe these moves will also undermine competition in the industry by making it harder for smaller players to break through and challenge larger banks.”
However, EY head of financial services tax Anna Anthony argues the surcharge is likely to be more acceptable than the levy “because it at least has a direct link to the profitability of an institution”.