Tuesday 22 June 2010

Bank shares rise as City 'counts itself lucky' at modesty of levy

George Osborne could see the symbolic political value in putting a tax on the banks, but has squared the circle of pleasing City opinion by producing a smaller levy than many had anticipated.

The Wall Street Journal reports that the UK banking sector "can count itself lucky".

Robert Peston of the BBC says the Tories won the argument with the Liberal Democrats over the size of a bank levy, with their coalition partner proposing a £5 billion a year tax.

That £2.5bn is a fraction of what the Tories' coalition partners, the Liberal Democrats, wanted to extract from the banks.

And the tax rate - 0.04 per cent next year, rising to 0.07 in 2012/13 - is well short of the 0.15 per cent rate proposed by President Obama (although his tax would die after a bit more than $100bn has been raised).

Which probably explains why banks' share prices didn't move much today (Lloyds up, RBS up less, Barclays down a bit).

The head of equities at City Index said that UK retail banks also rallied after the headline grabbing bank levy came in lighter than perhaps anticipated."

Another analyst, off the record, said that, any levy set at less than £5 billion might be regarded by some as a "rounding error".

City voices are taking care not to publicly sound too relieved. The British Bankers Association offered a measured response, understanding the reasons for the tax while going through the motions of warning about competitiveness.

However, Peston suggests that Lloyds, Royal Bank of Scotland and Barclays may face a significant bill, while most other banks and building societies may well escape paying much, or anything, towards the levy at all.

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