From the TUC

Budget: What bank levy?

24 Jun 2010, by in Economics

The Chancellor announced a levy on banks’ balance sheets “to ensure our banks make a fair contribution to reflect the risks they pose.”

But the cut in corporation tax from 28% to 24% by 2014 is expected to negate the impact of the levy on bank profitability. Banks could be better off as a result of as a result of tax changes announced in the Budget.

Headlined as raising £2 billion, in fact the levy is set at the low rate of 0.04% initially, rising to 0.07%. In truth, the levy on balance sheets will not reach £2 billion until 2012.

2010-2011 2011-2012 2012-2013 2013-2014 2014-2015
Bank levy (from January 2011 0 1,150 2,320 2,500 2,400
Corporation tax cut 10 400 1,200 2,100 2,700

A number of bank analysts confirm that some banks could benefit from Osborne’s measures. Deutsche Bank analysts commented that the budget was a “good outcome for banks” shortly after it was announced. Other analysts went further.

John-Paul Crutchley at UBS, expected Lloyds and HSBC to benefit by 2012 because the cut in their corporation tax bill was larger than their hit sustained through the bank levy. HSBC’s banking analysts concurred. “We’d expect most domestically-orientated banks, for example Lloyds, to be better off after four years than they were pre-budget,” the HSBC analysts said. Other commentators are suggesting that banks would use the levy as an excuse to hike the cost of borrowing for customers.

Goldman Sachs’ analysts noted that the government acknowledged this in the budget: “The budget highlights that the introduction of a bank levy may partially offset the fall in the cost of capital should banks pass on some or all of the levy in the form of a higher cost of corporate finance”. Lloyds Banking Group may benefit overall from Chancellor George Osborne’s budget, as it gains more from a cut to corporation tax than it loses from Britain’s new bank levy, according to an analyst at Redburn Partners LLP.

One Response to Budget: What bank levy?

  1. Tweets that mention Budget: What bank levy? | ToUChstone blog: A public policy blog from the TUC —
    Jun 26th 2010, 12:32 am

    […] This post was mentioned on Twitter by ToUChstone blog, Emma Ritch. Emma Ritch said: The bank levy will be off-set by the reduction in corporation tax, leaving some banks better off. (via @touchstoneblog) […]