A number of points made by George Osborne in his Budget speech earlier today will impact on the Banking sector, and therefore on any businesses seeking to raise loan finance.
Bank levy and corporation tax
Prior to the Budget, it had been trailed that the bank levy was likely to remain for the foreseeable future. However, the Chancellor announced significant changes to the bank levy and corporation tax regime for banks. These reforms are designed to counter accusations that retaining the bank levy long-term would be a barrier to banks returning to financial health, whilst ensuring that the Treasury maintains tax receipts as banks do return to profitability.
There will be a steady reduction in the bank levy over the next 6 years (from 0.21% now to 0.10% in 2021), and from 2021 the levy will apply to UK balance sheets only. Is this a peace offering from the Treasury to HSBC, who were particularly affected by the levy applying to their global balance sheet as compared to their competitors?
It’s not all good news for the banks though, as any windfall from a reduction in the bank levy will effectively be offset by an 8% corporation tax surcharge on bank profits (to take effect from 1 January 2016).
Where ongoing operational costs are relevant, the increase in the insurance premium tax rate from 6% to 9.5% from November 2015 should be considered. This could have an effect on financial covenant modelling for business with significant insurance costs.
The widely anticipated sell-off of the government’s shares in private banks, including RBS, is likely to be accelerated following a commitment in the Budget to return these banks to private ownership.