The new wave of bank taxes
The government said on Tuesday it proposed to introduce a 0.07 percent levy on banks’ balance sheets, rising from an initial 0.04 percent tax to be applied from January 1, 2011.
Chancellor George Osborne announced the tax in his first budget on Tuesday. The levy, which will apply to UK banks and building societies and UK units of foreign banks, is expected to raise more than 2 billion pounds ($3.09 billion) per year.
The UK is in a fiscal crunch, and it needs to raise money anywhere it can, so this makes sense. The nation as a whole is deeply in debt, and rising taxes on all sectors of the economy are a way of enforcing savings to prevent that debt from spiraling out of control.
I would have liked, however, to see the tax be a little less flat. If the Fiscal Commission is looking across the pond to see what the UK is doing, then I’d urge them to think a bit more inventively: make the tax progressive, with too-big-to-fail banks paying a higher rate; and maybe link it to leverage, somehow, as well.
I do think it would be silly for UK banks to start thinking about how they might be able to relocate to get around this tax. The UK might be the first, but in these fiscal times this kind of thing will become very common all over the world.
Update: Peston goes down the list of losers and (relative) winners.
Update 2: GingerYellow says that looking at the details, the UK bank tax is actually quite close to what I’m looking for.