U.K. Bank Levy May Focus on Domestic Business to Protect London

  • Levy now structured to capture consolidated balance sheets
  • Legislation in current Parliament to provide certainty

The U.K. government may redesign its bank levy to impose less of a burden on international banks and ensure London retains its attractiveness as a major hub of the financial-services industry.

Chancellor of the Exchequer George Osborne proposed changing the scope of the levy after global banking groups based in the U.K., including HSBC Holdings Plc and Standard Chartered Holdings Plc, said they might move abroad partly to escape it. The proposals are intended to narrow the application of the tax, which is currently calculated as a proportion of lenders’ global consolidated balance sheets, to their U.K. activities.

“The government has committed to legislating for this change within the current parliament,” the Treasury said in a consultation paper on Wednesday. “It is acting now on that commitment in order to provide the banking sector with certainty over the future of the bank levy, and allow the implications of the reform to be considered as part of banks’ structural reform plans.”

The Treasury said it needed to review whether the levy was still appropriate in capturing the risks to the U.K. posed by the banks. “The risk of failure of U.K. banks’ overseas subsidiaries is being reduced by higher loss absorbency requirements and more effective host-state supervision,” the Treasury said. And the impact of such failures has been reduced by international coordination on resolution planning and British plans to ring-fence core services offered by the nation’s domestic lenders, it said.

Under the Treasury’s proposals, the redesigned levy will apply to all U.K.-resident companies within banking groups and sub-groups, as well as their overseas branches. Meanwhile, non-U.K. subsidiaries of U.K. groups will be excluded from the scope of the levy. The liabilities lenders resident outside of Britain take on to fund U.K. branches will be captured by the tax, the Treasury said.

The consultation will run until March 4, 2016, with changes to the law included in the 2017 budget.

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