Warning bank levy could lead to job losses

A NEW £2.5bn a year bank levy could lead to job losses because it might encourage large financial services firms to leave Britain, an expert warned.

Dr Alper Kara, of Hull University Business School, argued that any steps to make the UK's banking sector less competitive would lead to cuts in financial services, which could harm Yorkshire's economy.

His concerns were shared by Howard Kew, the chief executive of the taxpayer-funded lobbying group Financial Leeds, who said: "The Government needs to ensure that the levy is structured to ensure it doesn't drive banking business away from London."

Chancellor George Osborne said he wants the levy, first announced in the June emergency Budget, to raise the "maximum sustainable revenues" without driving banking groups out of the UK.

Dr Alper, an accounting and finance specialist, said: "The question here is how the permanent levy will impact on London's attractiveness for banks operating globally. The spontaneous negative reaction of the financial markets shows the concern that, with the introduction of the levy, foreign banks may relocate elsewhere, which ultimately may lead to further job losses in the sector."

Ian Williams, the director of policy at Leeds, York and North Yorkshire Chamber of Commerce, said: "This tax has been widely publicised and we would hope that any funds raised by the levy would be reinvested in growing the economy and supporting private sector job creation.

"We do not want it to lead to a reduction in those working within the Yorkshire financial sector.

"There is concern that a bank levy could force UK lenders to take a risk-averse approach and limit funding to small and medium-sized businesses. However, the chamber hopes that the 1.5bn Business Growth Fund announced in the CSR will help counteract this problem."

More details about the levy will emerge today when the legislation is presented ahead of its planned introduction on January 1.

The move aims to raise around 2.5bn a year by forcing banks to pay penalties based on their net worth, which is seen as more a tax on risk rather than profits. Mr Osborne said banks should share the pain of measures to repair the deficit caused by the financial crisis.

He said the Government didn't want to let banks "off their fair contribution", and, at the same time, he didn't want to drive them abroad.

He added the levy will "raise more each and every year" than the Labour Government's one-off bonus tax earlier this year, which charged 50 per cent on all windfalls above 25,000 – raising more than 2bn.

Mr Osborne also confirmed that all UK banks will be asked to sign up to a tax code of conduct by the end of next month.

Only four out of 15 banks have signed up to the code. Under the code, they agree not to design avoidance schemes to reduce their bills or those of their clients. Final legislation is due by the end of the year, while the Treasury said it was continuing to work with international partners on a financial activities tax on profits and pay.

The British Bankers' Association (BBA) said banks "fully understand they have a role to play in the UK's economic recovery". It added: "Decisions taken today will have an effect on the whole industry and to remain competitive, UK policies need to be in step with those elsewhere."

The annual bank levy was unveiled in June as part of a joint move by the UK, France and Germany.

The tax will apply to banks and building societies, as well as foreign banks with UK operations, although it is not set to apply to those with balance sheets of less than 20bn.