Budget: What bank levy?
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.
|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.