Osborne’s banking levy falls short of IMF benchmark

George Osborne’s planned financial services levy is a lamentable failure according to international benchmarks. The IMF has called for any banking tax in Britain to be set at £6 billion. Last week, Left Foot Forward highlighted the socially regressive nature of the £2.5bn tax which will mean banks contributing 50 per cent less than families (child benefit and tax credit cuts) to the government’s fiscal consolidation programme.

George Osborne’s planned financial services levy is a lamentable failure according to international benchmarks. The IMF has called for any banking tax in Britain to be set at £6 billion. Last week, Left Foot Forward highlighted the socially regressive nature of the £2.5bn tax which will mean banks contributing 50 per cent less than families (child benefit and tax credit cuts) to the government’s fiscal consolidation programme.

The Chancellor has dismissed the idea of a financial transaction tax, (‘Robin Hood’ campaign), and appears reluctant to curb excessive banking sector profits and remuneration without international support.

That leaves as his only option the banking levy, which will raise £2.5bn 2013/14. The IMF, however, has argued that Britain’s financial industry should be taxed to the tune of £6bn. The exact applicable tax rate has yet to be finalised by Mr Osborne. To compound matters his plan has already been dumbed down.

The original plan was to have a £20bn threshold, with tax applying on the entirety of a bank’s balance sheet (i.e inclusive of the £20bn). Now instead of this threshold, every institution will have a £20bn allowance that will not be taxed. The banking levy will affect only liabilities above that level.

The forecasted revenue from the levy is pitifully low when compared to the costs of the banking sector bailout. According to a recent IMF report of financial sector taxes, the yet to be recovered fiscal cost to the UK is 6.1 per cent of GDP (as of end-2009).

However, this figure grossly underestimates the actual cost and exposure of the entire crisis to the UK. It is believed in most advanced and developed nations it could have been as high as 25% of GDP.

Mr Osborne’s planned levy of £2.5bn, which equates to roughly 0.2 per cent of GDP in the UK, is a clear illustration of this government’s abdication of any notion of social fairness. It simply cannot be right that a recession, caused by a collapse in the financial sector and markets, places such a disproportionate share of the burden on the public.

To reduce the iniquitous Comprehensive Spending Review fiscal consolidation settlement, the burden on the financial sector can be drastically increased with the adoption of a financial activities tax (a tax on remuneration, profits and bonuses) or a financial transaction tax (a Tobin tax or the Robin Hood campaign).

Net direct costs of recapitalisation and asset purchases is estimated to average 2.8 per cent of GDP or $877 billion for the richest G20 economies. The table below highlights the recovery rate for the advanced nations of the G20. It currently records a recovery rate of 21 per cent. This illustrates the extent to which the global financial sector has escaped its moral dues.

IMF-banking-levy-estimates

To his credit, the Chancellor has been pushing for an international financial activities tax, which will be on the G20 agenda next month. If his government genuinely believes in ‘fairness’, they must push hard not only for an additional financial sector tax, but one that truly prices their actions past, present and future.

25 Responses to “Osborne’s banking levy falls short of IMF benchmark”

  1. Ma

    RT @leftfootfwd: Osborne’s banking levy fall short of IMF benchmark: http://bit.ly/becBwn writes @RayhanHaque

  2. Shamik Das

    On @leftfootfwd 2day: @Matt0wen on the future for Obama: http://bit.ly/boeQkC & @RayhanHaque on the banking levy: http://bit.ly/becBwn

  3. David Jobe

    More they raise, less they cut
    "leftfootfwd: Osborne’s banking levy fall short of IMF benchmark: http://bit.ly/becBwn writes @RayhanHaque"

  4. Rachel Hardy

    @robinhood RT @leftfootfwd: Osborne’s banking levy falls short of IMF benchmark http://bit.ly/9bC4wU bring on http:robinhoodtax.org.uk

  5. Carina

    RT @leftfootfwd: Osborne’s banking levy fall short of IMF benchmark: http://bit.ly/becBwn writes @RayhanHaque

  6. anyleftiwonder

    He has to look after his own. Us commoners should know our place.

  7. Stewart Owadally

    Great dissection of Osborne's madness here http://bit.ly/9n14p0

  8. john matthews

    RT @leftfootfwd: Osborne’s banking levy falls short of IMF benchmark http://bit.ly/9bC4wU

  9. Guy Manchester

    Osbournes banking levy falls short of IMF benchmark. Perhaps not surprisingly. http://qtwt.us/w5rs

  10. Gareth Jones

    http://tinyurl.com/3ajmccn Osborne’s banking levy falls short of IMF benchmark

  11. Rayhan Haque

    RT @leftfootfwd: Osborne’s banking levy falls short of IMF benchmark http://bit.ly/9bC4wU

  12. Nick H.

    RT @leftfootfwd: Osborne’s banking levy falls short of IMF benchmark http://bit.ly/9bC4wU – TAX THE BASTARDS! – Simples….

  13. Tim Worstall

    Sigh,

    The banking levy isn’t meant to pay back the costs of the banking crisis. It’s meant to be an insurance premium for the deposit insurance that the banks have had implicitly and which we should be explicitly charging them for.

    Comparing economy wide losses from the financial crisis to the size of the banking levy is simply insane: that’s not what it is about at all.

  14. Simon

    Well, Tim, as usual you live in Fantasy Politics Land. The tax may not mean what it says on the tin, shock horror!

    The failure of any UK government to break up the retail and casino sides of any bank as well as this pitiful contribution to our recovery says it all.

  15. rayhan haque

    Hi

    Osborne has said his banking levy is designed to get the maximum sustainable contribution for his fiscal deficit reduction plan. Most other countries have the same intention. This is right, but we should also design a levy or tax to cover future bailout costs. There will always be, to some extent, a moral hazard with the financial sector and we need to protect ourselves from it.

  16. William J. C. Brown

    RT @leftfootfwd: Osborne’s banking levy falls short of IMF benchmark http://bit.ly/9bC4wU

  17. David M Watson

    RT @leftfootfwd: Osborne’s banking levy fall short of IMF benchmark: http://bit.ly/becBwn writes @RayhanHaque

  18. Mr. Sensible

    I think we should remember also that, according to I think the IFS, the cut in Corporation Tax almot cancels it out in any event.

  19. One Society campaign

    Govt bank levy falls short according to international benchmarks.IMF suggests £6bn a year.Govt opts for £1.1bn in 2011. http://tiny.cc/6k31k

  20. James Doran

    RT @One_Society: Govt bank levy falls short according to international benchmarks.IMF suggests £6bn a year.Govt opts for £1.1bn in 2011. http://tiny.cc/6k31k

  21. Michael Lewis

    RT @One_Society: Govt bank levy falls short according to international benchmarks.IMF suggests £6bn a year.Govt opts for £1.1bn in 2011. http://tiny.cc/6k31k

  22. Craig Griffiths

    RT @One_Society: Govt bank levy falls short according to international benchmarks.IMF suggests £6bn a year.Govt opts for £1.1bn in 2011. http://tiny.cc/6k31k

  23. Jenny Chapman

    RT @One_Society: Govt bank levy falls short according to international benchmarks.IMF suggests £6bn a year.Govt opts for £1.1bn in 2011. http://tiny.cc/6k31k

  24. Sophia Collins

    If IMF thinks yr too rightwing…RT @One_Society Bank levy falls short. IMF sugg £6b/yr. Govt opts for £1.1bn in 2011 http://tiny.cc/6k31k

  25. Shamik Das

    Cameron's banking levy not good enough; see here for more: http://www.leftfootforward.org/2010/10/imf-reaction-to-banking-levy/ #PMQs

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