John McDonnell, the shadow chancellor, has accused Philip Hammond of failing to cancel a “tax giveaway” by his predecessor to Britain’s biggest banks, worth more than £1bn this year.
In his summer budget after the 2015 general election, the then chancellor George Osborne announced deep cuts to the bank levy, which was introduced after the financial crisis and charged according to the size of banks’ balance sheets. Big banks, including HSBC and Standard Chartered, which felt penalised by the levy, told him that they could move their headquarters outside the UK. Osborne announced phased cuts in the levy over the parliament and made up the shortfall in revenue by imposing an 8% surcharge on banks’ corporation tax, which falls on all lenders, not just the largest.
McDonnell said by failing to reverse the cuts in the bank levy in November’s autumn statement, Hammond was handing the big banks a rebate taxpayers could ill afford. The latest forecasts from the independent Office for Budget Responsibility, published alongside the autumn statement, showed revenue from the bank levy at £2.7bn for the current financial year, instead of the £3.8bn expected in March 2015, before the general election. “Philip Hammond tried to sneak out the fact that he has continued this cut in the bank levy, which will provide big banks with a tax giveaway larger than under even George Osborne. “The fact that we are seeing such a large handout to the biggest banks in our country at a time when we are seeing cuts to our schools, NHS and a funding crisis in our care service is truly shameful.”
McDonnell, who is the closest ally of Labour leader Jeremy Corbyn, will make a major speech on economic policy this month and hopes to draw a clear dividing line with theConservatives by showing that he would take on vested interests as chancellor. He recently made a series of spending pledges to protect pensioner benefits, including the costly triple-lock guarantee (that pensions rise by the same as average earnings, consumer price index or 2.5%, whichever is highest), in an effort to win over elderly voters. Labour also wants to show that it will fight to avoid a “bankers’ Brexit” – protecting the interests of the City at the expense of ordinary taxpayers – though it has said it would like to see the continuation of “passporting”, the regime allowing UK-based banks to trade throughout the EU.
A spokesman for McDonnell said Labour would reverse the cuts to the levy and would be unlikely to remove the corporation tax surcharge, because it came alongside a series of cuts in the corporation tax rate which had reduced big corporations’ tax liability. When the government announced that policy, the Treasury minister Harriet Baldwin told MPs: “It means that the overall rate of corporation tax will be slightly lower for banks than it was in 2010.” Britain’s competition watchdog, the Competition and Markets Authority (CMA), warned that the shift to the corporation tax levy would reduce the advantages of the tax system for smaller banks trying to break into the market. So-called challenger banks told the CMA they expected to be paying up to £123m more in tax between them by 2020-21 as a result of the changes.
“The overall effect, compared with the pre-2016 position, is that the tax advantages of smaller banks including new entrants have been reduced as a result of the changes to the bank levy and the introduction of the CTS [corporation tax surcharge]. Therefore, any effect that these tax advantages had in offsetting the barriers to entry and expansion such banks face are likely to be reduced,” the CMA said.
A Treasury spokesperson said: “The government is clear that banks, like all businesses, must pay the right amount of tax. The reform of the bank levy was announced alongside the introduction of a new 8% surcharge on bank profit. Together, the levy and the surcharge are expected to raise over £18bn from banks over the next five years.” McDonnell also called for Hammond to abandon “deeply unfair” cuts to the corporation tax rate, saying the money could have been used to fund teachers, nurses and police officers. The rate has been reduced from 28% in 2010 when David Cameron became prime minister, to 20% and will fall to 19% in April under plans to reduce it to 17% in 2020. The cuts will be worth almost £15bn a year to businesses by 2021 and Labour claims this is equivalent to employing 12,000 nurses, 10,000 police officers and 10,000 teachers full-time every year for a decade.
McDonnell said: “We have known for a long time that the Tories’ cuts to corporation tax have cost the exchequer billions and today we have laid bare what this means for our public services. “Labour is calling on the government to reverse these deeply unfair tax giveaways and start properly investing in our vital public services.”