Taxation of the financial sector – July 2015

I agree that the financial sector must pay a fair share of tax and make a significant contribution to repaying the debts that were incurred as a result of the banking crisis. That is why the previous Labour government introduced the Bank Payroll Tax in 2010 – which raised £3.4 billion in 2010/11 – and why I believe the government should carefully consider the most effective way to raise revenue from the banking sector and reform our financial institutions so they are more durable and responsible in future.

As you know, the Chancellor announced significant changes to bank taxation in the July Budget, including reducing the bank levy from January 2016 and introducing a new surcharge on bank profits. This is a completely different approach to the one the Chancellor announced just a few months ago in his March Budget – when he outlined plans to significantly increase the bank levy – so it will be important to look closely at the impact these changes will have on tax revenues, competition in the sector and on bank practices as the Finance Bill progresses through Parliament.

In particular, I am concerned that the reduction in the bank levy will cost £1.8 billion from 2021 onwards – which is of course an extremely significant giveaway – and that it is not clear if the new bank surcharge will manage to compensate for this. It is also unclear what the consequences will be of the government’s decision to shift from a tax on bank balance sheets to bank profits. There are also unanswered questions about the impact these changes will have on building societies and challenger banks.

I believe there needs to be much greater transparency and consistency in bank taxation. It is welcome, therefore, that my Shadow Frontbench colleagues will be tabling amendments to the Finance Bill on this and will push the government for further details regarding the impact these measures will have on the diversity of the financial sector.

I can assure you that I will continue to follow this issue very closely as the Finance Bill progresses through Parliament.

With regard to a Financial Transactions Tax (FTT) or a ‘Robin Hood’ tax on the financial sector, I believe this is a measure that is worth consideration. It would be important that any FTT should incorporate the widest possible global participation to mitigate the risks of traders simply playing one jurisdiction against another, and there is a case for the government to explore an international and proportionate FTT, which could raise additional sums while reducing the volatility of financial transactions.

Thank you once again for writing to me and for sharing your views. I can assure you that I will continue to press the Government on this issue and bear in mind the points you raise.