Bank levy: City let off the hook

Chuka Umunna MP, who sits on the Treasury Select Committee, has slammed the government, which today announced its plans for a bank levy, for going soft on the banks only a day after hitting the public hard with deep and immediate spending cuts in yesterday’s Comprehensive Spending Review.

The Comprehensive Spending Review said that “it is only right that during difficult times, steps are taken to ensure that the banks make a full and fair contribution,” although the government’s draft proposals announced today fall far short of this aim.

The government has opted to apply the levy over and above a £20 billion allowance rather than using a threshold. Under a threshold, any bank with total liabilities of more than £20 billion would have been taxed on all their profits, while under the plans announced today all banks regardless of their size will not be subject to the levy on their first £20 billion of taxable liabilities.

A stipulation was included in today’s plans that the levy will not apply to firms where 50% or more of activity is defined as ‘non-financial’. Because investment banks often have extensive and varied operations, this could allow firms to dodge the tax.

In the June Budget, the government announced a banking levy at a rate between 0.04 and 0.07 per cent. Following this, charities such as Oxfam called for a higher rate and the IMF suggested that the government’s suggested level was not sufficient to curb reckless behaviour in the City.

With today’s plans again allowing for a levy of less than 0.1%, the government has failed to respond to these criticisms. The government was expected to announce the proposed rate today but instead it is to be announced closer to when the levy begins to apply from 1 January 2011.

Figures obtained by Mr Umunna through a Parliamentary question in July show that the government only hopes to raise £1.15bn from the levy in 2011-12 and £8.37 billion in total between 2011-12 and 2014-15 (less than half the government’s total cuts to welfare spending of £18 billion announced in the CSR yesterday). Meanwhile another answer to a Parliamentary question by Mr Umunna in July stated that the financial services sector would receive £1 billion as a result of the corporation tax reductions outlined in the June Budget.

Commenting, Mr Umunna said: “The actions of banks triggered the financial crisis, meaning the government had to borrow billions of pounds in order to protect people’s savings, keep high street banks open and prevent the economy from seizing up.

“In the Comprehensive Spending Review, there were no new measures to ensure that those who caused the crisis pay their fair share towards paying down the deficit and the draft bank levy legislation published today falls far short of the decisive action we need and is an insult to those losing benefits and local services.

“Not only is the rate at which the bank levy applies too low but we learn now that the tax will not be levied on the first £20 billion of these banks’ liabilities, gifting them somewhat of a reprieve.”