Monday, 15 November 2010

Bank Levy Fun

From City AM:

Q. WOULD BANKS PAY LESS BY MOVING OFFSHORE?

A. Some banks would, yes. Foreign banks only have to pay the levy on their UK operations. So if HSBC or Standard Chartered were to move to Hong Kong, it wouldn’t have to pay the levy on any foreign assets at all – just British ones – saving it a considerable amount. However, some foreign banks could be levied twice, if their home countries adopt a similar tax. The Treasury says it will give relief to banks being taxed twice but it hasn’t come forward with details on how it expects to do this.


It never ceases to amaze me how stupid the people are who design our tax laws.

The Golden Rules of Taxation are "Don't tax things that can be moved abroad (unless you want them to)" and "If you tax things, you usually get less of them (which might be desired, if you are discouraging certain activities or trying to ration something)", so the very first rule to lay down would have been that a bank levy only applies to UK assets and/or liabilities, for the simple practical reason that not doing so drives banks abroad and you end up with less tax revenues than you started with.

14 comments:

Scott Wright said...

"It never ceases to amaze me how stupid the people are who design our tax laws."

Hear Hear, even I could write better tax law and i'm only semi-literate.

Tim Worstall said...

The bank levy is not a tax. It is an insurance premium on bank liabilities that are, in the end, guaranteed by the taxpayer.

Mark Wadsworth said...

SW, ta.

TW, in that case your understanding is entirely at odds with City AM's, which (in a different article) said:

"The Treasury had originally planned to apply the full levy to “riskier” forms of funding, such as wholesale liabilities that mature in less than a year.

Deposits not covered by insurance or a state guarantee would be levied at half the amount, while guaranteed deposits would be exempt."


In the instant case, I'll go with what City AM say. In any event, compulsory insurance is a tax (like National Insurance).

Tim Worstall said...

""The Treasury had originally planned to apply the full levy to “riskier” forms of funding, such as wholesale liabilities that mature in less than a year.

Deposits not covered by insurance or a state guarantee would be levied at half the amount, while guaranteed deposits would be exempt.""

Yes, quite, it's an insurance levy. That's why it's not levied on liabilities that already have deposit insurance for which payments are already made.

And it's levied on the riskier liabilities (eg, the sort of thing that led to the wholesale run on N Crock) at a higher rate than less risky (notes and bonds).

It's an insurance levy.

Mark Wadsworth said...

TW, even HMRC's own guidance refers to it as a tax. Isn't insurance taken out by the owner of an asset on the asset, and voluntarily? And how much do banks pay for the insurance that supposedly benefits their depositors?

PS, as to 'riskiness' of liabilties, it's the remaining time to maturity that matters. A 20 year bond issued 19.5 years ago is a lot 'riskier' than a one year loan taken out last week. And neither are 'risky' at all from the point of view of the borrower, it is a liablity.

adamcollyer said...

Eh? "the riskier liabilities (eg, the sort of thing that led to the wholesale run on N Crock)"?

Wholesale funding is the least risky sort. The most risky (from the point of view of c ausing sudden collapse of a bank) are sight deposits, which can be withdrawn at a moment's notice (and were in the case of Northern Rock). The "deposit insurance" that you're talking about (I assume you mean the State guarantee of bank deposits) protects the depositor, not the bank.

I agree with Mark. It's a tax.

James Higham said...

Jersey has one or two things to say on that issue.

Mark Wadsworth said...

AC, the least 'risky' is of course share capital and retained profits, but that said, I think a tax on certain UK bank assets/liabilities is a splendid idea. But it's best to do it properly.

john b said...

Isn't insurance taken out by the owner of an asset on the asset, and voluntarily?

Not when the aim is to protect third parties from the consequences of your actions (whether you're a driver or a business).

Mark Wadsworth said...

JB, exactly, it's a tax, ostensibly designed to reduce the likelihood of harm to third parties, like fag or booze duty.

The principle is fine, the implementation is awful.

Mark Wadsworth said...

JB, further, when you take out third party insurance, you are insuring yourself against the risk of a massive claim from a third party. The fact that this benefits third parties is a bonus.

Lola said...

The 'stupid tax law framers' remark just shows your delightful niaivete. Tax laws aren't framed to be good laws or efficient or 'fair'. They are framed to raise money whilst also fulfilling the political imperitive of indicating to others that someone who doesn't deserve to be rich/well paid/hate person de jour (bankers, jews...) is getting hit, not you. That's why they are always crap, because as we all know economies consist of people and things, companies and governments being simple admin conveniences by which we make life less chaotic. It would not go down well to explain that to The Voter otherwise he would realise that the banks weren't paying this tax, he was.

This is why nearly all taxes are uncivilising, contrary to the glib 'taxes are the price of a civilised society' bollocks.

Mark Wadsworth said...

L: "They are framed to raise money"

As I've said above, I don't mind the "raising money" bit - which is why I would have expected them to exempt the overseas element; in theory, if HSBC and Standard Chartered clear off, we'll end up with less tax revenues than before. A bank levy purely on UK secured loans is like a special LVT for banks and would 'work' just fine.

As to 'depositor insurance', see your own manifesto!

Lola said...

MW - yes, I see that, but my point was the politics confound the 'raising money' bit. And I do mind the 'raising money' bit, because they then spend this money mostly very badly and always worse than I can spend it myself.