By Agency Reporter

Wednesday, 9 Feb 2011

Chancellor of the Exchequer, George Osborne, increased a tax on United Kingdom bank balance sheets to raise an extra £800m ($1.3bn) as he continues to press lenders to boost lending targets and curb pay.

The rise means the government will raise 2.5 billion pounds from the tax in the current financial year ending in April, more than the previously forecast 1.7 billion pounds, the Treasury said on Tuesday.

According to Bloomberg, the levy, announced by Osborne in June last year, was introduced in January. The £2.5bn target was originally intended to apply in future years.

“I wanted to get on the table what we’re going to do with tax so we could negotiate in good faith with the banks on lending agreements, rather than negotiate the lending agreement and sting them with the tax,” Osborne said in an interview with BBC Radio 4’s “Today” show. “I’m not prepared to conclude a deal until I know it’s a good one for the British people and the British economy,” he added.

Osborne made the announcement as talks with banks on pay and business lending, the so-called Project Merlin, continued for a 10th week. With banks due to announce payouts this month and next, Labour’s new Treasury spokesman, Ed Balls, called for the reintroduction of his party’s onetime tax on bonuses, which raised £3.5bn a year ago.

“Without this bank-bonus tax (and with the banks set to benefit from a corporation-tax cut) George Osborne has actually delivered a tax cut for the banks compared to last year, even after today’s announcement,” Balls, who on Tuesday faced Osborne in the House of Commons for the first time since his appointment, said in an e-mailed statement.

“This panicky announcement seems to be a fig leaf to hide George Osborne’s failure to get a deal” with the banks on pay and lending.

The government will charge banks 0.1 per cent on short-term liabilities and 0.05 per cent for long-term liabilities in March and April, the Treasury said in the statement. The rate will then drop to the 0.075 per cent rate for short-term and 0.0375 per cent for long-term liabilities announced in December.

The levy was increased because bank stability has improved in recent months, lenders have been given greater time to meet international capital requirements and there is more certainty on regulation, the Treasury said.

“I was originally going to phase this in but when I made that announcement in June, most of the world thought the banks were weaker than they’ve turned out to be so we can move more quickly to the full rate,” Osborne said.

Lloyds Banking Group Plc, Standard Chartered Plc and Barclays Plc spokesmen declined to comment. HSBC Holdings Plc and Royal Bank of Scotland Group Plc and spokesmen did not immediately return calls seeking comment.

 

Source: Punch