– The authors are Reuters Breakingviews columnists. The opinions expressed are their own –
By George Hay and Hugo Dixon
LONDON, March 24 (Reuters Breakingviews) – A UK bank tax of the sort being advocated by both main political parties could raise up to 3.6 billion pounds a year. The exact sum would depend on which parts of the balance sheet are taxed. But one thing is clear: as a proportion of earnings, RBS and Lloyds would be harder hit than Barclays, HSBC and Standard Chartered.
The most basic way of levying the tax would be to follow what President Barack Obama has proposed for the United States. He wants to levy a 0.15 percent annual charge on a bank’s total assets — minus its deposits and Tier 1 capital. Applying that to the five big UK banks would raise 3.6 billion pounds annually, according to Reuters Breakingviews analysis.
But the tax, likely to be formally endorsed in today’s Budget by Alistair Darling, the chancellor, could be modified. The opposition Conservative party says it would move ahead with a levy, even if other countries didn’t follow suit — but, in such an event, the tax wouldn’t be especially high through fear of driving Britain’s banks offshore. The Conservatives haven’t spelt out exactly what they’d do but they have spoken warmly of the “Swedish model”. Applying a levy at the same rate as the Swedes — 0.036 percent of total assets — would raise 2.1 billion pounds from the UK’s big five.
On the other hand, if a global approach can be agreed, some policymakers like the idea of concentrating the tax on short-term wholesale liabilities. The thinking is that it’s only such “hot money” that makes banks vulnerable — so long-term liabilities, say those over one year, should be excluded from the levy. Applying Obama’s 0.15 percent levy to a shrunken balance sheet, excluding long-term funding, would cut the UK’s tax take to around 2.7 billion pounds.