UK raises bank tax for sixth time as proceeds fall short

LONDON Thu Dec 5, 2013 11:03am EST

LONDON Dec 5 (Reuters) - Britain increased the rate of a tax on banks for the sixth time in three years on Thursday as official data showed this has repeatedly failed to raise as much as the government expected.

Finance Minister George Osborne said in his Autumn Statement he would raise the levy rate imposed on banks from next year and widen its scope to address the shortfall.

The tax has never raised the 2.5 billion pounds the government wanted to raise each year when it was brought in at the start of 2011. Britain has said that was an appropriate amount to ensure that banks made a fair contribution after taxpayers bailed out the industry during the financial crisis.

Britain is likely to raise 2.2 billion pounds ($3.6 billion) from the tax in the current 2013/14 financial year, or 500 million pounds less than a prediction in March, according to Office of Budget Responsibility (OBR) estimates in the Treasury's statement.

Osborne said the tax will bring in 2.7 billion pounds in 2014/15, less than the 2.9 billion pound forecast by the OBR in March. Britain raised 1.6 billion pounds from the levy in 2012/13 and 1.8 billion in 2011/12.

Osborne forecast the levy will raise 2.9 billion pounds in 2015/16, a year later than the OBR forecast in March, and the same amount each year thereafter.

He will raise the rate of the levy to 0.156 percent from next year. The rate applies to the global balance sheets of UK banks and assets of UK operations of foreign banks.

The government has had to increase it repeatedly because of a reduction in the size of banks' balance sheets. It was originally set at 0.04 percent.

"As banks continue to deleverage, the rate of bank levy will need to continue to rise to meet the target yield. At some point this could affect pricing and the availability of credit," said Wayne Weaver, UK banking tax leader at Deloitte.

The design of the levy will also change to widen the tax base, which the Treasury said will help to restore forecasts for future years' receipts to target.

HSBC, Europe's biggest bank, has previously said the levy unfairly hits banks with big overseas operations and those that aren't shrinking, and said half its payment last year was on non-UK banking activity.

HSBC expects to pay about $800 million under the levy this year, up from $571 million 2012.

Standard Chartered, which makes more than 90 percent of its profits in Asia, Africa and other emerging markets, expects the cost of the levy to rise to $250 million this year from $174 million in 2012.

Barclays paid 345 million pounds last year, Royal Bank of Scotland paid 175 million and Lloyds paid 179 million.

Overseas banks with big London operations, such as JPMorgan and Goldman Sachs, also pay sizeable sums.

The tax replaced a one-off tax on 2009 bonuses that raised over 3 billion pounds but failed in its central aim of curbing bankers' pay.

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