“George Osborne has actually delivered a tax cut for the banks compared to last year, even after today’s announcement.”
Ed Balls MP, responding to the Chancellors’ increased bank levy, February 8, 2011
Cathy Newman checks it out
If George Osborne had been a tennis ace, you’d accuse him of trying to wrongfoot his opponent: lobbing the ball in the wrong direction so Ed Balls had no hope of whacking it back.
Ahead of their first match in the Commons since the new shadow chancellor was appointed, Mr Osborne’s announcement of an £800m banking levy looked like a move to distract Labour from the fact that nothing’s been done to curb bonuses. Mr Balls isn’t so easily fooled. So did he correctly see through the chancellor – and did that enable him to get on the front foot?
George Osborne today announced he’d be increasing the levy on bank profits by £800m – taking the total to £2.5bn. He also promised to make it permanent.
We FactChecked Labour’s complaint last month that the coalition’s bank levy amounted to a tax cut for the banks this year – compared to Labour’s one-off bank bonus tax which reaped £3.5bn gross last year.
And today, Ed Balls still isn’t satisfied – even with the hike in rates it’s still a cut, he claims. So who’s right?
The Treasury argues that Labour’s £3.5bn is a gross figure – the net gain was more like £2.3bn.
The Office of Budget Responsibility explained to FactCheck that’s because the Treasury thinks around £1.2bn was lost in National Insurance and income tax payments last year due to banks lowering their bonus payouts.
So how does Labour’s £2.3bn compare with what the Tories are promising? Well, the Treasury’s own press release from today puts the net figure for the fiscal year 2011-12 at £1.9bn – quite a bit shy of the £2.5bn pledged by the chancellor.
The Treasury told FactCheck that the reason Mr Osborne quotes £2.5bn is that the banking levy taxes the banks’ balance sheets which are based on the accounting period January – December.
It plans to collect the banking levy in the same way that it collects corporation tax – which means that by April 2012 it will have only collected three quarters of what is owed by the banks.
“There will always be delays between what’s announced and what’s collected – you only need look at all the past Budgets to see that,” Mike Warburton, director of Grant Thornton told us.
So comparing the bank levy with Labour’s bonus tax is rather pointless, says Mr Warburton.
An annual banks levy is worth a great deal more than a one-off tax, as the Prime Minister himself has argued.
Yet, abandon the bank bonus tax and you’re left with more in the profits pot to be taxed by the bank levy – which in the long term could put banks off from doing business in the UK.
“We’re damn lucky to have banks like HSBC based in London, we don’t want to put them off,” Mr Warburton said.
Indeed, alongside Barclays, HSBC is leading the rebound in the banking sector – with the two expected to have made more than £15bn between them last year.
Cathy Newman’s verdict
This year, the banking levy will deliver £1.9bn. So that’s £600m short of the £2.5bn outlined by the Chancellor, and less than the £2.3bn secured by Labour the previous year. So Ed Balls can indeed argue that the banks have got a tax cut. But what’s a few hundred million to George Osborne? He succeeded in his political aim today by unveiling a headline-grabbing, banker-bashing initiative. And in the current climate of public hostility towards the bankers, that’s probably priceless.
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