Banks ‘face £2bn tax hit’ due to new tax

Banks will pay a further £2bn in tax when a proposed profits is introduced, the British Banking Association (BBA) has warned.

City of London

Today, Chancellor George Osborne announced a reduction in the existing bank levy over the next six years, and a new tax to begin in January 2016.

Currently, banks pay 0.21 per cent against balance-sheet assets. This will be fall to 0.1 per cent in 2021, when it will only apply to UK assets.

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From January 2016, banks will face a permanent surcharge of eight per cent against profits.

Osborne told the House of Commons the changes would keep Britain competitive but “maintain a fair contribution from the banks”.

The BBA welcomed the levy changes, saying it will “reduce the damage it does to Britain’s biggest export industry”.

However, the profits surcharge will “reinforce fears that Britain is becoming a less attractive place for banks to do business”.

It added: “We believe these moves will also undermine competition in the industry by making it harder for smaller players to break through and challenge larger banks.”

Earlier this year, HSBC warned it may move its headquarters out of the UK because of current costs of doing business.

In his first Budget since the Tory government took power, Osborne also revealed plans to raise insurance premium tax from six per cent to 9.5 per cent. The change is expected to net more than £1.5bn for the Exchequer.

The Association of British Insurers (ABI) estimated it would add £9.48 to home insurance and £12.25 to car policies annually.

ABI director general Huw Evans said: “It’s very disappointing to see a more than 50 per cent tax increase being imposed on consumers, especially when the insurance industry and Government has worked so hard in recent years to bring down the cost of essential insurance.”