Bank levy hits big banks harder
The new bank levy is becoming weighted more towards the bigger banks, the Treasury has announced. And the tax rate is being increased fractionally.
It is still being charged largely on banks' short-term wholesale finance, the money they borrow for short periods from other financial institutions, corporates and very wealthy individuals, and on uninsured retail deposits (so deposits greater than £50,000).
However for each bank the first £20bn of such funding will now be exempt from the tax. Which means that banks with balance sheets only a touch bigger than £20bn will be more-or-less exempt from the tax (and those with balance sheets less than £20bn will be completely exempt).
In other words, the giant banks based in the UK will pay the lion's share of the tax. And in respect of British banks, the bulk of the tax will be paid by Royal Bank of Scotland, Barclays, HSBC and Lloyds.
In 2011, the levy rate will be 0.05%, with a 50% discount applied to uninsured retail deposits. The following year the rate rises to its permanent rate of 0.075% (and again half that for uninsured retail deposits).
These rates represent increases of 0.01 of a percentage point in 2011 and 0.005 of a percentage point in 2012 and onwards compared with the earlier indicated rates.
However because of tweaks in the way the levy is applied, the Treasury expects to raise only around £100m per annum more revenue from the tax than its earlier estimate.
So over the coming four years, the Treasury expects to receive a total of £8.8bn from the tax, with the take rising from £1.3bn next year to £2.6bn in 2013 and 2014.
As for individual banks, well it is difficult to be sure how much they will end up paying, because all of them are trying to reduce their reliance on the kind of short-term wholesale funding where the full levy rate applies.
However, if the tax had been applied to Royal Bank of Scotland's balance sheet at the end of 2009, it would have paid around £500m to the Exchequer.
Which is not a trivial sum of money, but is well under half of what RBS paid out in bonuses.
And of course the £2.6bn to be paid by the banks each year is a rounding error in the context of the £1.2 trillion of support provided by British taxpayers to the banking sector (in the form of investment, loans and guarantees) to keep the banks afloat at the height of the 2008-9 crisis.
Update 1055: RBS has calculated that, based on its 2009 balance sheet, the bank levy would cost it £315m in 2011 and £473m in 2012. But remember that, like all the big banks, RBS is both shrinking its balance sheet and trying to become less reliant on short-term wholesale funding. So it may well end up paying rather less.