Britain’s summer budget in July 2015 contained a set of reforms to the tax regime for the banking sector which it presented like this:
What those numbers mean, essentially, is that the changes will mean that the banking sector is going to be paying more tax. Hooray!
Time to get out the champagne?
In a word, no. There is serious mischief in here. We have just had a reply to a Freedom of Information request which confirms this.
Here’s the thing. Recently we posted an article entitled “Why a ‘competitive’ economy means less competition.” It explained, by way of background, how the ‘competitiveness agenda‘ – under which possibly politically astute (and possibly economically illiterate) politicians urge the government to shower subsidies on banks, multinational corporations and wealthy individuals under threat that they’ll flee elsewhere – will tend to boost the large and wealthy players more than they otherwise would have, enabling them to kill their smaller and more locally-rooted competitors on factors that have nothing to do with genuine innovation or productivity, and everything to do with pure wealth extraction.
We showed how this was the case both in the field of corporate tax, and in the financial sector too. (It doesn’t stop there, but that’s another set of cans of worms.)
Our article noted how the bank reforms in the summer budget were in fact two reforms: first, a reduction in a tax called the ‘bank levy’ (which hits the largest banks hardest, and predictably led to a load of hyperventilating claptrap about ‘tipping points’ and other such nonsense); and second, a new eight percent ‘bank surcharge’ (which hits a much wider range of banks, including the smaller so-called ‘challenger banks’.)
The first means less tax; the second means more tax; and the net result is forecast to be slightly more tax.
What was the justification given for these reforms? Well, they said:
Competitiveness, once again. (In fact that short section contains three more versions of the c-word, including this variant: “reducing the risk of . . .influencing banks’ decisions on the location of internationally mobile activities.”)
To summarise: the smaller banks will be penalised relative to the bigger banks – in the name of ‘competitiveness.’
This, of course, is likely to reduce competition in banking — which is what we argued in our more detailed earlier post.
But one of the things we noted then was that that in the official explanation for the bank levy, and even in the detailed budget policy costings, they didn’t (for obvious political reasons, it seems) break down the impacts of the two separate tax changes.
This was devious: it would have been a piece of cake to publish this data, but this would have exposed what was going on. Much easier to mash up the two different reforms and present it as a politically popular tax increase on the banks. It’s probably doubly devious in this respect – but we’ll get to that in a second.
Now then. Fools’ Gold submitted a Freedom of Information request to obtain this data, and the results of this request are now in:
(We’ve pasted the relevant part of the FOI response itself below.)
To be precise, they are forecasting that the changes to the bank levy will cost UK taxpayers £4.2 billion over the next five years. (And, of course, there’ll be a whole lot more after that.)
Update, Nov 9: we thought this was new information (and it still appears to be, in terms of precision), but Simon Bowers points out these less precise numbers on p94 of this OBR document.
For fuller context and explanation, please see our original blog.
One fourth-last thing. Let’s not forget that the bank levy was put in places for damned good reasons.
One third-last thing. We said earlier that they may have been doubly devious here. What we meant was that this may have been cynically planned as a long term double whammy to get rid of all those pesky bank taxes.
First, you cut the bank levy sharply, but soften up the population by dressing it up as just being part of a tax hike on banks. Next people will see what’s going on and say ‘but hey, this is reducing competition!’ And you use that as excuse to row back on the eight percent surcharge (or you simply repeat the exercise until the bank levy has finally been throttled.)
One second last thing. To be more precise about that FOI response we had, HM Revenue & Customs said this:
One final thing. Fools’ Gold posts have been a little thin, of late. Apologies. This is because of a big project that’s been going on elsewhere: that’s now done (and do check out all those country reports). We will shortly get back to more regular posting, once the backlog we’ve built up gets out of the way.