Government faces £400m 'shortfall' on bank levy

Moving to a band system could deliver substantial cuts in the levy for some of the UK’ largest banks, with Barclays and HSBC, the largest payers of the tax, potentially in line for combined savings of more than £300m based on a proposed maximum charge of £375m.

Executives at the main lenders are understood to have made clear their anger at the growing cost of the levy to UK-based banks and had argued for rethink on the tax.

However, Labour’s shadow financial secretary to the Treasury, Cathy Jamieson, on Monday accused the Government of handing a “secret tax cut” to British banks .

“The bank levy has already raised billions of pounds less than was originally promised. George Osborne must come clean and explain what impact this banding will have on revenues from the bank levy in future years,” said Ms Jamieson.

KPMG said that even the last week’s Office for Budgetary Responsibility (OBR) forecast of £2.3bn for the levy’s revenue in the year 2013-2014 was “under some pressure”.

According to the OBR, income from the levy will rise to £2.7bn in 2014-2015 and £2.9bn the following tax year, having raised just £1.6bn in 2012-2013. The predicted rises mean the Treasury would hit its target of raising an average annual amount of £2.5bn.

But with British banks looking to lower their contribution, the government will be under pressure to explain how any shortfall could be made up.

Banking industry experts say the most likely source of additional revenues would be to attempt to get foreign banks with major operations in the UK to pay an increased proportion of the tax.

Speaking to the Telegraph earlier this week, Mr Aston said it was inevitable the authorities would look to move more of the cost of the levy on to international institutions.

“If the latest proposals are intended to please the UK banks then there is a significant burden to be redistributed onto foreign institutions,” he said.

Wayne Weaver, UK banking tax leader at Deloitte, agreed non-UK banks potentially faced a large rise in their levy contributions.

“The issue with lowering the tax on some of the biggest banks is that the Treasury has to make up the difference somewhere else and that more than likely means raising the cost to international firms; some could see a big increase in their share of the cost,” said Mr Weaver.

He added: “This new consultation looks to me like some banks are still unhappy with the burden that falls on them and have pushed for a more radical change to the way it is calculated".

A spokesman for the Treasury said: "The bank levy is forecast to raise £2.9bn a year from 2015-16 according to the independent OBR and the government has no plans to reduce the amount of money the levy raises."

He added: “The consultation, announced at Budget last week, will look at ways to make the levy more predictable and sustainable moving forward.

“The suggested changes will not impact on the target yield from the levy, which is designed to ensure that the sector makes a fair contribution.”

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