It is a political victory of sorts for Ed Miliband that the Treasury announced this morning that another £800m would be added this year to the levy on Britain’s banks.
George Osborne had introduced a bank levy of about £2.5bn a year in his first Budget last summer, but initially decided it should be introduced at a starter rate of £1.7bn. (In technical terms, it was a temporary levy of 0.05 per cent on balance sheets, then going up to 0.075 per cent). The theory was that this lower rate would allow banks – weakened by the credit crunch – to build up their capital positions. But the huge bonus round being paid out this spring rather undermined this theory.
Now Osborne has said that the banks are strong enough after all to withstand the higher rate of the levy.
So why is it a vindication of Ed Miliband? Because back in early January the Labour leader came to blow (metaphorically) with David Cameron at PMQs over the apparent fall in bank tax for the current year. Without this political knockabout it is possible that few people outside the Treasury would have noticed the discrepancy. (James Kirkup agrees).
As we wrote at the time, the figures showed a temporary drop in the levy for this year after last year’s £3.5bn one-off tax on bank bonuses:
2010: £3.5bn 2011: £1.7bn (now £2.5bn) 2012: £2.3bn 2013: £2.6bn 2014: £2.6bn.
By lifting this year’s figure to £2.5bn Osborne seems to be merely ironing out the glitch in his new levy.
Peston describes it as “symbolic”:
The £800m increment is a rounding error in respect of the ballooning national debt and would shave considerably less than 0.1 percentage points off the UK’s 10 per cent annual fiscal deficit.
Ed Balls is quick to claim that the figure is lower than the £3.5bn raised last year (although this figure is itself disputed*).The shadow chancellor said:
“If George Osborne was serious he would adopt Labour’s plan to repeat last year’s £3.5 billion bank bonus tax on top of the bank levy….Without this bank bonus tax – and with the banks set to benefit from a corporation tax cut – George Osborne has actually delivered a tax cut for the banks compared to last year, even after today’s announcement.”
* UPDATE: The Treasury has been in touch to ask for a correction to this £3.5bn figure and replace it with the “correct £2.3bn revenue from the bonus tax“, which is the figure that would be scored in the red book.
I’ll repeat what I wrote last time, that is:
The Treasury reached its £2.3bn figure for last year by lopping off £1.2bn from the original £3.5bn figure – citing the income tax and NI which the exchequer may have lost due to banks paying lower bonuses than they might have done. (A speculative behavioural assumption). The debate has been going on for months, as this article in Financial News shows.
Treasury officials say there were similar behaviour assumptions behind the £2.5bn estimate for this year – and therefore it should be compared with £2.3bn, not £3.5bn.
“There are similar behaviour assumptions with the bank levy. Banks will pay more than £2.5bn in gross terms,” says one official. “It will be offset by a fall in corporation tax and the likelihood that they will reduce their short-term funding in response.”