Budget 2010: Lloyds, RBS shares rise despite new bank levy

Lloyds shares rose 4pc, while shares in RBS increased 0.7pc after the Government unveiled plans for a charge on the global balance sheets of every UK bank with assets over a certain threshold.

Analysts – who had been expecting a more punitive measure – said the new levy, which will come into force in January, was not as bad as it could have been. The levy was announced in Tuesday's Budget.


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Ben Brogan: Osborne delivered the unvarnished truth Ian Gordon, a banks analyst at BNP Paribas, in a note titled "UK Bank Levy: Bark Worse Than Its Bite?," said the impact would be less than had been expected and more widely spread.

"As things turned out, for all the pre-election vitriol aimed at the UK banking system, the impact of today's measures appears materially lighter than expected, especially with the burden being broadly spread," he argued.

In its first year the levy is forecast to bring in tax revenues of £1.15bn, based on a 0.04pc tax on the total size of each bank's assets.

The tax will increase in its second year to 0.07pc, taking revenues to £2.32bn, rising to £2.5bn the following year.

Ratings agency Fitch said the levy would have "no impact" on its ratings of any UK bank.

"The sums payable under the levy look manageable in the light of banks' pre-tax profits and should not lead to rating changes," said Matthew Taylor, a senior director in ratings agency Fitch's financial institutions team.

Announcing the levy, which has been agreed in conjunction with the French and German governments, Chancellor George Osborne said it was "fair and right that in future banks should make a more appropriate contribution which reflects the many risks that they generate".

"This was a crisis that started in the banking sector and the failures of the banks imposed a huge cost on the rest of society," said Mr Osborne.

Responding to the announcement the British Bankers' Association (BBA) released a statement saying the banking industry "fully understands the part it must play in helping the UK's economic recovery".

However, investment banking lobby group the Association for Financial Market in Europe (AFME) said the levy could hurt Britain's ranking as major financial centre.

Mark Austen, acting chief executive of the AFME, said: "A unilateral UK bank levy could adversely affect an important sector of the UK economy and threaten the UK's future as the world's leading financial centre."

"The banks are committed to working with the Government to ensure new bank levies balance tax-raising objectives with the need to keep the recovery moving, and for banks to contribute to economic growth through continued support for the wider economy by lending to businesses and individuals," said the BBA.

The main area of controversy surrounding the new levy is the issue of double taxation as last year the US announced plans for a bank levy of its own. The US tax would hit several major UK banks with large American operations, including Barclays, HSBC and RBS.

These banks potentially face the prospect of being taxed twice on the same assets, according to lawyers, who said the UK government must reach an agreement on tax relief with their US counterparts.

Tony Anderson, a banking partner at international law firm Pinsent Mason, said there were many questions surrounding reciprocal arrangements.

"The Chancellor has stated that such levies will also be introduced in France and Germany. Considering the current exposure of French and German banks to defaulting borrowers in the Eurozone, there must be concern for the impact of multiple, accumulating levies on these banks at a time when they are being encouraged to lend more to businesses," said Mr Armstron.