Liberal Democrat Chief Secretary to the Treasury Danny Alexander has announced details of a plan to raise an extra £1bn from a supplementary corporation tax charge applied to banks to help finish the job of eliminating the deficit.
The supplementary charge will be in addition to the existing Bank Levy. The Lib Dems will push for this measure to be included in the forthcoming budget. If resisted by the Conservatives, then the proposal will be in the party's manifesto.
Danny Alexander said: "Failings in the banking system were a major factor in the great crash of 2008. That is why we have always insisted that the banks help fund repairing the economy.
"To that end, we introduced the Bank Levy which is on track to raise £8 billion in this Parliament. With the final stage of deficit reduction requiring around £30 billion of savings, it would be totally wrong for all of that to be found from cuts to public services as the Conservatives propose.
"Liberal Democrats believe that we must balance the books and do so fairly, so it is only right to reconsider whether banks are making a fair contribution to deficit reduction. This tax would remain in place until that job is complete."
The supplementary charge will remain in force until our fiscal mandate is met. The rate will be set at 8 per cent. This will effectively remove the series of Corporation Tax reductions introduced since 2010 from the banks.
Danny Alexander added: "Many banks were left seriously weakened after the crash. But as a result of our comprehensive range of reforms, and the strong economic recovery, the banking sector is now returning to health and profitability.
"So now is the right time to ask the sector to contribute a little more to help us balance the nation’s books. That’s the right way to keep our strong economy on track, and build a fairer society too."
Liberal Democrat MP for Bristol West Stephen Williams said:
“We were clear in 2010 that the books needed to be balanced, but that it should not be done on the backs of the poorest in society. It is quite right that we put in place a bank levy to help us balance the books. Now that they are increasing their profits it is also right we get them to contribute more."
All the revenue raised from the supplementary charge would go towards deficit reduction and is part of the broader package announced by the Deputy Prime Minister and the Chief Secretary to the Treasury on February 5 to balance the books fairly.
Notes to editors:
The supplementary charge applies to all companies that are regulated banking entities. This will not capture all companies within a banking group since certain banking groups have significant non-banking subsidiaries. The definition used is consistent with the definition used at AS14 concerning the bank loss relief restriction measure.
The base of the supplementary charge is the existing Corporation Tax base, as this is the most appropriate metric of net income. However, in designing the supplementary charge we would make certain adjustments:
1. We would disallow loss relief between banking and non-banking entities within the same group.
2. We would disallow losses incurred prior to the 2015-16 financial year, on the basis they were incurred as the result of either: (1) the financial crisis; or (2) subsequent mis-selling and misconduct scandals (LIBOR, FX etc.) and should not be relieved at a higher rate. This is consistent with the rationale of the bank loss relief restriction measure.
The rate of the surcharge will be set at 8 percent (to offset the benefits to the sector of the CT cuts announced by this government).
Applied to regulated entities with the two adjustment outlined above the surcharge would yield around £1bn.
The bank levy was justified on the basis of recovering financial crisis costs, compensating for future banking sector risk and incentivising banks to change their behaviour.
Since 2010, we have delivered a significant programme of regulatory and structural reform which has strengthened the incentives around banks’ funding, lending and remuneration decisions and helped to reduce UK taxpayer exposure to banking failure (e.g. through requirements for banks to issue bail-in-able debt and separate their retail and investment banking entities from 2019).