At the start of this saga between the Government and the Banks, it was immediately made aware to everyone that this clearly a highly debatable topic. The Chancellor announced an 8% tax surcharge on banks whose profits exceed £25 million which will take into effect next year, now this came much to everyone’s surprise. The Treasury believe that this will raise an extra £6bn but many banks/accountants predict that more than double of that forecasted figure will be raised from these profits. EY are just among many have also backed claims that the Government’s bank tax will raise far more than predicted by Treasury, which doesn’t instill much confidence within the businesses and general public alike. Even though the Chancellor can reassure everyone that this amount of £6 billion predicted will be raised over the next 5 years and not immediately, it is clear that UK retail banks, big firms and more importantly small firms, will be hit the hardest at a time where the country is experience some sort of growth.
This is not over
Small banks and building societies criticised the Government’s refusal to make changes to tax on profit that will affect many of them in January of next year. Many of them have complained that the bank tax will harm their growth prospects, and take away valuable resources during which the Government had previously been urging them to compete with the larger banks and building societies. Their Chief executives attended a meeting at the Treasury on Sunday and said that many “disapproved” when officials had refused to give grounds over the 8% surcharge.
The Chancellor doesn’t just face opposition from the banks, but from the Labour party (this is to be expected however). Therefore banks and building societies who oppose the Chancellors 8% bank tax have been offered somewhat of a ‘salvation’ by the Labour Party. This ‘salvation’ is outlined by the Labour Party which aims to alter the charge to favour smaller building societies and banks. All in all this has come to some relief for the smaller firms after publicly issuing their disagreement earlier in the week.
As a result of the impact that this surcharge will have on the Banks, Chancellor Osborne has received a new warning from Andrew Tyre, chairman of the Treasury select committee, over the potential impact that this new tax will have on the banks. Tyre raised concerns the levy would stifle new competition within the sector. Despite the surcharge, the levy that is imposed on the banks has been scaled back.
Wait and see
Within the next few years we will find out whether or not the Treasury’s or the banks’/accountants’ predictions are correct. Even then many circumstances may change in terms of whether or not the current Conservative Government remain in power (due to the impossible nature of trying to predict voting patterns). Either way the banks will initially be harmfully hit, whether that will affect the UK’s economy in an adverse or a favourable way remains to be seen.