Families hit twice as hard as banks

Families are to contribute twice as much as the banks to bringing down the deficit. The finding makes a mockery of George Osborne's claims on the banks.

Families are to contribute twice as much as the banks to bringing down the deficit. The finding makes a mockery of George Osborne’s desire to “extract the maximum sustainable tax revenues from financial services”.

The Treasury is expecting to bring in £2.4 billion from the bank levy by 2014-15 but the Guardian today reveals that “it was yet to agree on the actual rate at which the levy would be imposed” while banks will be given a £20 billion allowance below which they will not be taxed.

The final figure will be offset by the corporation tax cut from 28% to 24%. The Guardian reports:

“When the levy was first floated in June’s emergency budget, analysts calculated that a planned cut in corporation tax to 24% from 28% would negate the impact of the levy and that some banks, such as state-backed Lloyds Banking Group and Royal Bank of Scotland, could actually stand to gain from the tax changes.

“The Treasury was adamant last night that this would not be the impact at an industry level and produced figures that showed, for instance, in 2014-15, the corporation tax costs being £0.4bn, compared with a bank levy yield of £2.4bn.”

But the £0.4bn figure could be an underestimate. The Treasury expects the corporation tax cut to cost £2.7bn by 2014-15 while the City of London estimated last year that financial service companies paid 27.5% of total corporation tax paid in the UK economy. If the ratio were maintained, the industry would benefit to the tune of £0.74bn. That total would bring the bank contribution to fiscal consolidation down to £1.65 billion – less than half the £3.6bn net reduction in child benefit and tax credits announced on Wednesday.

Labour MP for Streatham and Treasury Select Committee member, Chuka Umunna, said:

“In the Comprehensive Spending Review, there were no new measures to ensure that those who caused the crisis pay their fair share towards paying down the deficit and the draft bank levy legislation published today falls far short of the decisive action we need and is an insult to those losing benefits and local services.

“Not only is the rate at which the bank levy applies too low but we learn now that the tax will not be levied on the first £20 billion of these banks’ liabilities, gifting them somewhat of a reprieve.”

We’re all in this together? Hardly.

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