A step into the unknown

George Osborne’s bank levy to raise £8.3billion in four years rightly made budget headlines last week. Part political opportunism, part economic necessity, this measure was met with broad public approval. After all, no-one is going to begrudge the Chancellor his swipe at the banking sector whose stock among the public both literally and figuratively is at an all time low. What’s more this move will meet with international approval as politicians across the globe implement schemes like this to recoup losses and make a point.


This figure at first sight appears considerable but in the context of likely bonus payouts by the banks over the same period I suspect will be manageable. More worrying may be its impact on their capital bases. With wholesale funding remaining tight the levy must be accurately judged so as not to undo the repair to balance sheets that is currently underway. And while the banks will benefit from cuts in corporation tax too this levy must not make operating in the UK unattractive compared to other jurisdictions given its reliance on Financial Services.

The expectation of many is that banks such as Lloyds, RBS, Barclays and HSBC will shoulder the lion’s share, the very banks that are (with Santander) exclusively writing the UK’s current mortgage business. With access to wholesale money still difficult demands on capital remain acute. How they choose to accommodate the levy may have consequences for their lending activity. The levy is a political and economic gamble which will exact a modicum of revenge for the excesses of the past but we must hope not at the cost of future mortgage lending.