In a new paper, the British Bankers' Association (BBA) said that taxation of banks in the UK had neither prompted "domestic business investment" nor helped to "attract international investors". It said changes to the bank levy should be considered to help improve the UK's "tax competitiveness".
"We would like government to consider reform of the bank levy," the BBA said. "Proposals to consider could include the levy to be capped in terms of its rate and a sunset clause introduced so that banks can begin to plan for a future without the levy."
The BBA said that the bank levy, announced by the chancellor George Osborne in 2010 and first imposed in 2011, "is already causing damage".
"For example, activities are being booked outside London and marginal investment decisions are seeing activity placed outside the UK," the BBA said. "Having more certainty around this issue and ensuring that the broader objectives of tax competitiveness includes the banks is an important medium-term objective. This is important not only from the perspective of the location of international banking and capital markets activities, but also in terms of impacting upon the provision of credit to the domestic economy."
The Daily Telegraph reported that BBA chief executive Anthony Browne has written to Osborne asking him to consider the reforms as part of his Budget plans, to be announced on Wednesday.
Banking expert Tony Anderson of Pinsent Masons, the law firm behind Out-Law.com, said: "The rate of the levy has quadrupled since its introduction five years ago. Concerns are arising not only about the competiveness of UK banks, but also the accumulative effect of this levy and the other regulatory cost burdens being placed on banks and how much of this will end up being footed by UK taxpayers and account holders at the end of the day."
The bank levy is an annual tax on the value of certain debts of UK banks. The rate of the levy was originally set at 0.05%, but has gradually increased to the current 0.21%. The levy applies to banks' liabilities above £20 billion threshold, except to ordinary deposits and government-backed bonds. Longer-term liabilities are taxed at a lower rate, currently 0.105%.
According to the Daily Telegraph, Browne said that "thousands" of jobs that could have been created in the UK banking industry have been moved elsewhere because banks are moving operations elsewhere due to the levy and other regulations.
“The more banks deleverage and the more that banks move operations overseas, then the higher the rate is for the existing activity caught by the tax, so you end up with a vicious circle where the tax rate gets higher and higher and the activity gets less and less, and the more the rate goes up," he said, according to the Telegraph report.