By Claire West

In response to the Treasury’s consultation on the introduction of a bank levy, the Institute of Directors (IoD) has expressed serious concerns about the impact the levy might have on the City of London and corporation tax revenues.

Commenting, Miles Templeman, Director-General of the IoD, said:

“There is clearly public concern about how some of the banks have behaved which needs to be addressed, but this should be done in a way that doesn’t encourage the banks to move their headquarters out of the UK. There is a risk that the bank levy, as currently designed, will drive banking business away, while doing nothing to reduce the risks that banks pose to the wider economy.”

The IOD made the following key points:

• We believe the bank levy has been designed to tap into anti-bank sentiment as a way of raising tax revenue, an approach that makes little sense at a time when the taxpayer is a substantial involuntary shareholder in major banks.
• On current projections (£2.5bn a year by 2013-14) the levy would appear to be manageable, but there is a serious risk that the levy will creep upwards in future, irrespective of which party is in government. The new leader of the Labour Party is already implying he would like a bigger levy.
• There is, therefore, a major risk from UK unilateralism, a risk that the Government under-states in the consultation document. Germany is hoping to raise €1.2bn annually from its bank levy. The UK already plans to exceed this with a levy of £2.5bn. The wider context must be taken into account, otherwise the UK will simply drive away banking business that does not need to be conducted in the UK.
• The Government’s approach risks undermining corporation tax revenues. Banks are perfectly capable of relocating their holding companies outside the UK and maintaining UK branches to conduct their UK business. HMRC will be familiar with the scope to minimise the profits that are attributed to such a branch. Such actions might not affect revenue from the levy, but they would affect revenue from corporation tax.