LONDON (Reuters) - Britain is considering changes to its three-year-old bank levy after failing to raise as much as expected from the tax, which some banks have said unfairly penalizes lenders with big overseas operations and those that are not selling assets.
Britain introduced the tax in 2011 saying banks should make “a fair contribution” to the potential risks they pose to the financial system. The levy, which has never raised the targeted 2.5 billion pounds ($4.1 billion) a year, applies to the global balance sheet assets of British banks as well as assets belonging to the UK operations of foreign banks.
In his annual budget statement on Wednesday, Chancellor George Osborne said that the government would consult on possible changes to the levy which would see banks put into different bands with each band charged a set amount.
Osborne also outlined measures to improve competition between banks including Britain’s financial regulator launching a review in September into the effectiveness of new rules meant to make it easier for customers to switch banks.
The Financial Conduct Authority will also study the costs and benefits of ‘account number portability’ which would enable customers to switch banks and keep the same account number.
In an effort to boost proceeds from its bank levy, the government has raised the rate seven times since its launch because banks’ downsizing meant there were fewer assets to tax.
Osborne said in December he would raise the levy rate again to 0.156 percent from 0.142 percent previously and widen its scope.
Britain is expected to raise 2.3 billion pounds from the levy this year, according to government data, compared with 1.6 billion in each of the two previous years.
The Office for Budget Responsibility stuck to its forecast that the government will raise 2.7 billion pounds in 2014/15 and 2.9 billion in each of the four subsequent years.
HSBC (HSBA.L), Europe’s biggest bank, has been hardest hit by the levy, paying out $904 million last year, up $321 million on the year before. HSBC said more than half its payment last year was on non-UK banking activity.
The Treasury will publish a consultation document on the issue on March 27 and any changes to the levy will not be implemented before next year.
“The UK is the only country hosting a leading financial center which has a bank levy...putting London at a disadvantage when competing for global banking business,” said Peter Maybrey, banking tax partner at PricewaterhouseCoopers.
($1 = 0.6034 British pounds)
Editing by Elaine Hardcastle