Bank tax ‘will raise twice Govt estimate at £12bn’

The Chancellor’s new bank tax on profits will raise almost twice the amount estimated by the Government at £12bn, according to EY.

Chancellor George Osborne announced in the summer Budget that the bank levy will be gradually reduced over the next six years, with a new tax applicable from 1 January 2016.

The current levy on bank balance sheets will be replaced with an 8 per cent surcharge on profits, which the Treasury forecast will raise £6bn over the current parliament.

However, a report by EY says the figure is “vastly understated”, according to the Times.

EY partner Richard Milnes says: “We are confident it could well be double that, and when you take into account the whole market … It could be even higher.”

Milnes says the Treasury had based its estimate on bank profitability over the past five years, stretching back to the financial crisis when many banks were undergoing intensive restructuring.

He says the EY estimates are based on current market conditions, and have been produced following repeated queries from banking clients questioning the Treasury’s assumptions.

Milnes says: “There’s been an acceptance by the banking sector that the political reality post-financial crisis was going to bring a more punitive tax regime. However, the last 12 months has been a sustained assault on banks’ tax positions.”

A spokesman for the British Bankers’ Association says: “We welcomed the Chancellor’s decision to amend the bank levy to reduce the damage it does to Britain’s biggest export industry.

“However, introducing yet another new bank-specific tax will reinforce fears that Britain is becoming a less attractive place for banks to do business.”