Budget 2015: Osborne Makes Allowances For HSBC And Standard Chartered

Jul 14, 2015

Written By Sofia Gymer, Editor, AllAboutLaw.co.uk

With the July Budget George Osborne delivered a number of contentious financial policies, including the news that the levy banks pay on their balance sheets is to be cut back almost completely.

The term ‘balance sheet’ refers to the financial statement that presents a summary of a company's total assets, shareholders' equity and liabilities (both short term and long term debts) at a specific point in time.

The levy will be reduced slowly, over the next six years, from the current 0.21% to 0.1%. It will also stop applying to any balance sheets outside of the UK entirely from 2021.

This is controversial because the levy was introduced following the 2008 financial crisis, as a deterrent against risky behaviour and as a method of encouraging the banks to contribute more to the UK economy.

But, on a different note, from 1 January 2016 all banks will have to pay an 8% surcharge on their UK profits. This is a move that will cushion government funds from the decrease in revenue when the levy is removed.

On another note, overall corporation tax (that’s tax on all profits, worldwide, if your company is based in the UK) is to be reduced to 19% in 2017 and 18% in 2020.

It's no surprise that Osborne has been accused of sending a ‘mixed message’.

So what on earth does this mean?

In summary, the disciplinary levy on the banks total balance sheets is being slowly faded out. From January banks will have to pay an 8% surcharge on their UK profits, but pay 2% less in corporation tax on their entire global profits.

Complex, but worth understanding.

So basically, this is important because it seems to favour banks with the majority of their assets outside of the UK. The policies have been described by as a ‘double-blow’ to smaller, domestic banks, but a blessing for those worldwide banks with the ‘lions share’.

HSBC and Standard Chartered are arguably those banks. Both have recently threatened to move their headquarters abroad due to the levy, which particularly affects banks with larger global profit margins. For example, HSBC paid £750m of the total taxes collected by the government in 2014, which was £1.9bn.

Thus, by reducing the levy and replacing it with an added surcharge on UK profits, banks that have the majority of their assets outside the UK will have an incentive to stay (such as HSBC and Standard Chartered).

The response from economists, lawyers, bankers and others in the business world has been extremely mixed.

Dan Neidle, a tax partner at Clifford Chance, supports the decisions. He told the Financial Times: “The bank levy is simply a bad tax. It pushes business away from the UK, and it penalises banks for engaging in low risk business. Nobody will be sorry to see the back of it. Replacing it with a simple corporation tax surcharge makes much more sense.’’

However, there is much anger among executives at challenger banks (the domestic, profitable but far smaller banks) as the levy did not affect them much, but the 8% surcharge on UK profits will greatly affect them.

Andy Golding, group chief executive of OneSavings Bank, said on Thursday: “This tax is an ill thought through matter which panders to the big banks who we know have been lobbying hard on the bank levy.

“We are trying to grow, invest, create jobs and provide consumer and SME choice — but an additional tax dilutes earnings and gets in the way of all these things.”

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