For HSBC, throwing a pre-election strop has borne fruit on budget day
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Version 0 of 1. Throwing your toys out of your pram during a general election campaign works – if you are a very big bank. HSBC will benefit from a reform of the bank levy that, very probably, will persuade its board that the group’s headquarters should remain in the UK. There are no guarantees, because HSBC’s directors have aired several grumbles about life in Britain in recent months, including regulatory reform and the threat to the UK’s membership of the European Union. But the bank levy, costing the bank about £750m this year, was at the top of the list and will now be reformed radically. The rate will be cut gradually from 0.21% of a bank’s liabilities today to 0.1% from 2021. More relevantly for HSBC, from 2021 the levy will be calculated solely on UK balance sheets, not the global versions. That is the key concession to HSBC and Standard Chartered, the two big UK-based banks that have most of their operations elsewhere in the world. Related: Budget 2015: the verdict from our columnists | The panel Instead, the bulk of banking-specific taxes will fall on banking operations in the UK. A new 8% surcharge on profits will arrive next year. In effect, banks will pay tax on UK profits at a rate of 26% – the new 18% rate of corporation tax plus the 8% surcharge. In this way, George Osborne expects to raise £2bn more from banks in this parliament than he would otherwise have done. There is, it should be said, a reasonable economic argument for responding to HSBC’s complaints-cum-threats. If a tax on global liabilities can be avoided by switching domicile, there is a clear incentive to move. In HSBC’s case, the authorities in Hong Kong would love to play host again; Standard Chartered has deep roots in Singapore. But you don’t have to look far to see which banks will pay more to make up the shortfall. Lloyds Banking Group and Royal Bank of Scotland were braced for a hit. But the so-called challenger banks, whose rise Osborne likes to champion as examples of the government’s pro-competition policies in action, will also be obliged to cough up when their profits are large enough. Look at Wednesday’s share price losses for the challengers: Aldermore down 15%; Shawbrook 10%; OneSavings 10%; Virgin Money 9%. Some of those banks, it should be said, have other reasons not to like the budget. They are big lenders to the buy-to-let mortgage market, where cuts to landlords’ tax relief will dampen demand. But reform of the bank levy was clearly a big factor in why they are less valuable businesses today. Expect to hear angry complaints about the little guys paying to keep the giant HSBC in London and preserve the standing of the City. The chancellor himself will hope that HSBC now does the decent thing and stays. But the attractions of Hong Kong were surely diminishing by the day. The mainland Chinese stock market is in a state of shambles as panicked authorities try to prevent a crash, and confidence in Hong Kong itself is suffering. HSBC might have stayed anyway. |