Budget Analysis: Fiscally-neutral but banks hit by £900m increase in levy

Andrew Coticelli, partner and head of tax at Deloitte in Yorkshire

Chancellor George Osborne delivered the final Budget of this Parliament.  The announcements were fiscally neutral but that masks significant tax increases on banks which finance reductions for individuals and the oil and gas sector.

Banks face a 25% increase in Bank levy, expected to raise over £900m  annually.  They will also no longer be able to deduct future costs of mis-selling compensation – costing over £200 million annually.  Bank levy has been increased eight times since its introduction and is a charge on the size of the bank’s balance sheet.  Some 70% is paid by the handful of large UK-headquartered banks.  

The major drop in the oil price brings overall economic benefits for individuals and business – but not for the oil and gas production sector.  The government has reacted by cutting petroleum revenue tax (paid by old fields) from 50% to 35% and cutting the supplementary charge from 30% to 20%.  This will see the marginal rate of tax for old fields drop from 80% to 67.5% and for other fields from 60% to 50%. There will also be a new investment allowance, which replaces several existing lower allowances.  Overall this is a £1bn package, expected to support £4bn of investment.

[VIDEO: 805] This Chancellor has made very substantial reforms to the taxation of savings over this parliament. Measures in this Budget will help ISA savers by allowing them to reinvest money withdrawn in the same tax year, due to arrive in autumn 2015.  From April 2016, there will be a new £1,000 personal savings allowance (£500 for higher rate taxpayers – zero for additional rate taxpayers) which will mean that 95% of taxpayers will not pay tax on their savings income.  The standard deduction of 20% tax by banks and building societies will cease from April 2016, so that taxpayers won’t need to claim refunds.  

Those receiving a pension annuity will be able to sell their annuity to a third party from April 2106, paying income tax at their marginal rate.  This is expected to raise £500 million for each of the first two years, as individuals pay tax on trading in annuities. At  the same time, the amount of pension savings which may be accumulated is being reduced, as  the lifetime allowance will be cut from £1.25m to £1m from April 2016, no doubt with transitional protection.

Every Budget contains measures to counter tax evasion and minor changes on tax avoidance, this is no exception; the government estimates that introducing automatic information exchange through the OECD’s Common Reporting Standard will raise £570m over five years by reducing evasion and non-reporting.

Clearly the Coalition Government has an eye of the General Election in producing this package.  The Chancellor’s announcements today will be followed tomorrow by announcements from the Chief Secretary on new civil and criminal offences and measures to improve standards.

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