EY response to the increase in bank levy

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Response to the increase in the bank levy from Chris Price, Head of Financial services in the UK for EY:

The bank levy is counterproductive if the government wants to increase lending

“If a bank is growing its balance sheet to try to quickly increase the supply of credit it can offer UK businesses, a blanket increase to the bank levy will actually penalise them. The fifth successive increase in the banking levy with no reward or differentiation for those banks that have made material strides towards meeting the government’s lending targets is counter-intuitive if the government is serious about trying to persuade banks to lend more. “

It’s one policy for business but another for banks

“The UK has moved to a declining corporate tax rate on the UK profits of UK headquartered groups and yet the bank levy is going in the opposite direction, with an increasing rate continuing to be applied to global balance sheets held in the UK.  That’s not just refusing to pass on the benefits of UK corporate tax policy to the banking sector – it is moving to a less competitive position for banks headquartered in the UK overall.”

International competitiveness of the UK is under threat

“Continuing to tax the global balance sheets of UK banks and lowering the threshold of the bank levy will damage the outlook for London as the home of international banking.  While we are facing uncertainty around the European Banking Union and the proposed European Financial Transaction Tax now would have been a good time to send some reassuring messages to the international banking market that we are open for business and keen to remain their home in Europe.”

The government needs to start considering the rate not the target

“The banking industry has been expecting a rise in the levy; it was inevitable if the government was to hit its £2.5bn target.  However we would encourage the government to review the target not the rate in the future.  With the banking industry being strongly encouraged to improve the quality of their balance sheets, being required to build even greater protection into those balance sheets, and simultaneously return to “normalised” credit conditions despite the global economy, a further and increasing cost on balance sheets is counterproductive.”