By Simon Miller
The UK government's Autumn statement saw a 10% rise in the bank levy to maintain its £2.5bn income while ruling out a Tobin tax.
Speaking to Parliament this afternoon, the Chancellor of the Exchequer George Osborne, said that although the UK economy became dangerously over-dependent on the financial sector, he repeated his refusal for the introduction of a EU financial transaction tax.
He commented: "It is this Government’s policy to ensure we remain the home of global banks and that London is the world’s pre-eminent financial centre."
Osborne continued: "That is why we will not agree to the introduction of an EU Financial Transaction Tax.It is not a tax on bankers; it is a tax on people’s pensions."
Instead, the bank levy will rise to 0.088% to maintain the £2.5bn income although this is projected to rise to £2.9bn by 2016. The rate will become effective from 1 January 2012.
Jason Karaian, financial services industry analyst at the Economist Intelligence Unit, commented: “One of the original justifications for the bank levy was to ‘encourage banks to move to less risky funding profiles’. In response to market pressures, banks are slashing their exposure to flightier sources of funds. Therefore, a lower-than-expected levy could be seen as a success in terms of altering banks' behaviour.”
He added: “However, since the Treasury appears wedded to raising a specific amount from banks, the introduction of a steeper levy to meet this nominal target significantly weakens the measure's power as an incentive. Now, it seems that the levy is purely a revenue-raising exercise, rather than a spur for lenders to change their ways.”
British Bankers' Association’s chief executive Angela Knight commented: “The banks are committed to playing their part in restoring the public finances through the many different taxes they pay. But a stable tax regime is important: banks of all nationalities do business around the world from here and they pay tax here. Certainty is an important requirement."
Osborne also confirmed that the government's response to the Vickers' review on banking will be published in December.