Bank asset sales to help pay down the deficit but levy is sting in the tail
Selling the mooted volume of shares will take the taxpayers’s stake in Lloyds down to around 7%.
The £22bn windfall will be used to pay down debt, winning plaudits from those supporting his determination to tackle the deficit rather than squander it on pre-election bribes.
But he has also increased the levy on the banks by £900 million a year which was not well-received by the City.
Lynne Sneddon, EY Tax Partner for Financial Services at EY Scotland, said: “This is a three-fold increase in the bank levy in just 4 years and once again is anti-competitive for our own UK banks.
“It will hit UK headquartered banks hardest as it’s a tax on their entire global balance sheets, whereas foreign banks in the UK are only taxed on their UK liabilities. The constant tinkering with the tax regime for banks in the UK is unhelpful, and in the long-term unsustainable – the industry will definitely be looking for a commitment to a more certain tax environment in the future.”
Malcolm Small, senior financial services policy adviser at the Institute of Directors, said: “The increase in the Bank Levy will make headlines, but we need to be wary of the downsides. This levy risks decreasing bank profits, potentially meaning less money to lend to growing businesses. Lower profits will also reduce the value of bank shares making the sale of government-owned bank shares that much harder.”
However, David Hillman, spokesperson for the Robin Hood Tax campaign, said: “George Osborne is right to ask the financial sector to pay more – but the bank levy increase falls short of the mark.
“It’s an affront to ordinary people who paid such a heavy price for the crisis that banks contribute so little – a fraction of the outlandish bonuses they continue to dole out.
“George Osborne cannot claim ‘we are all this together’ until banks are made to pay their fair share.”
Dimitris Andriosopoulos, senior lecturer in accounting and finance at Strathclyde Business School, said: “This increase in levy seems optimistic due to the current fragile capital needs and Basel III reform measurements. Besides, the banks are still struggling to get fully back on track with healthy profitability and to deliver a robust balance sheet. Additionally, there may be some resistance on this increase by the rest of the financial services sector.”