Banking sector hit with bigger charge

The bank levy is to be increased from next January, raising a further £285m in 2012.

The rise is the second so far this year after the Treasury announced last month the bank tax would be increased to £2.5bn this year, raising another £800m.

Mr Osborne said his latest move was designed to ensure the corporation tax cut would not be a “net tax cut for banks”.

But the industry reacted with dismay at yet another change in the levy, which was only brought into force in January.

The decision has reinforced fears of an exodus of UK banks with global operations as they face ever more onerous charges.

The British Bankers’ Association (BBA) said Mr Osborne was once again putting the country’s banks at a disadvantage globally with an unpredictable tax regime.

It added the levy rise was not a straight swap for corporation tax cuts, with the former being a charge on activities rather than profits.

Angela Knight, chief executive of the BBA, said: “While corporation tax is paid on profits, the bank levy represents an additional fixed cost for larger banks operating in the UK.

“It also controversially can include the business that banks are doing outside the UK. Without satisfactory double taxation arrangements in place, this is putting banks operating in the UK at a long-term disadvantage – both internationally, as they compete against banks not paying such a levy, and domestically, as they compete with other sectors of the financial services industry.”

The Confederation of British Industry said: “The banking levy is an additional cost to doing business in the UK, so it is important that international agreements are put in place quickly to avoid banks paying double taxation and to ensure that the UK remains an attractive global financial centre.”

The Government introduced the bank levy to ensure the sector helped to share in the costs of rebuilding the economy following the financial crisis and subsequent recession.

However, there has been concern over disproportionate effects on banks with international operations, such as Barclays and HSBC, which will pay the levy on all activities – including those outside of the UK.

The Treasury has also yet to resolve many of the double taxation issues it throws up where banks pay charges in other countries.