- KPMG launches UK Bank Levy research
- Bank Levy is draining banks’ profits and undermining efforts to strengthen their capital base
- Latest consultation unlikely to address key issue of the Levy’s burden on the UK banking industry
KPMG research into the UK Bank Levy shows that the UK’s top five banks suffered an effective tax rate of 71.3% on their 2013 profits which is partly attributable to the UK Bank Levy.
KPMG’s study examined several key metrics in the published results of the top five UK banking groups since 2011 to assess the impact of the UK Bank Levy since its introduction.
Bank levy rates remain unchanged following the Chancellor’s 2014 Budget last week but a further consultation on the design of the Levy, to be launched this week, was announced by the Government.
Tom Aston, head of banking tax for KPMG in the UK, commented: “The Bank Levy was introduced, in part, to support the key policy objective of reducing risk in the banking sector following the financial crisis. Our research demonstrates that, on some of the key measures, overall risk in the UK banking sector has now decreased with many banks having made substantial reductions in the size of their balance sheets as well as holding increased levels of capital to meet the new regulatory requirements. However, the other aim of the tax was to raise £2.5bn a year and so, as balance sheets have shrunk, the rate of the tax has been steadily increased (seven times now) to try to maintain the tax take. Our figures therefore show that the Bank Levy is now draining profits out of the banks and undermining efforts to strengthen their capital base.
“The Government announced a new consultation on the design of the Bank Levy in last week’s budget and we understand this will focus on how Levy charges can be fixed in a banding system to simplify budgeting for individual banks and to assist HMRC in estimating yield.
“While this is to be welcomed, our findings indicate that the burning issue is not getting budgeting right, but rather addressing the overall burden that the Levy is imposing on the shrinking UK banking sector – a burden that is now out of balance with its initial policy objectives.”
KPMG’s research shows that between 2011 and 2013:
Bank balance sheets shrank dramatically and capital strength improved:
The total UK Bank Levy increased significantly across the top five UK banks:
The UK Bank Levy charge across the top five UK banks increased from £1.2 billion in 2011 to £1.65 billion in 2013, an increase of 36%. This will largely reflect successive increases in the rate of the Bank Levy. In the same period total profits before tax reduced from £20.1 billion to £12.4 billion (excluding RBS’s results, total profits showed a small decline).
The UK Bank Levy has significantly increased the “effective rate of tax” on the top five UK banks’ profits:
The Bank Levy charge has increased the effective tax rate (i.e. Corporation Tax plus Bank Levy) on the aggregate profits of the big five UK Banks giving a total effective tax rate of 36% in 2011 and a total effective tax rate of 71% in 2013.
Excluding the results of RBS, the impact has been to increase the total effective tax rate to 27.25% in 2011 and to 40.01% in 2013.
The UK Government could, once again, undershoot its revenue target for Bank Levy receipts in 2013:
KPMG’s research suggests that, based on the 2013 figures released by the five largest banks (which we estimate paid c. 75% of the Levy in 2011 and c. 73% of the Levy in 2012), the Government may once again undershoot its target minimum yield of £2.5 billion by approximately £400m in FY 2013/14.
KPMG’s results also suggest that the Office for Budget Responsibility’s recent forecast of Bank Levy receipts of £2.3bn for FY 2013/14
may now also come under some pressure.
Notes to editors:
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KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with approximately 11,500 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2013. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 155,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
 HSBC Holdings plc; Barclays plc; Lloyds Banking Group plc; Royal Bank of Scotland Holdings plc; Standard Chartered plc. All figures taken from published annual results.
 The underlying corporation tax effective rates of tax (excluding Bank Levy) were: 30.25% in 2011 and 57.98% in 2013.
 The underlying corporation tax effective rates of tax (excluding Bank Levy) were: 23.16% in 2011 and 32.98% in 2013.
 Office for Budget Responsibility: Economic and Fiscal Outlook, March 2014