KPMG research into the UK Bank Levy shows that the UK’s top five banks  suffered an effective tax rate of 71.3% on their 2013 profits which is partly attributable to the UK Bank Levy.
KPMG’s study examined several key metrics in the published results of the top five UK banking groups since 2011 to assess the impact of the UK Bank Levy since its introduction.
Bank levy rates remain unchanged following the Chancellor’s 2014 Budget last week but a further consultation on the design of the Levy, to be launched this week, was announced by the Government.
Tom Aston, head of banking tax for KPMG in the UK, commented: “The Bank Levy was introduced, in part, to support the key policy objective of reducing risk in the banking sector following the financial crisis. Our research demonstrates that, on some of the key measures, overall risk in the UK banking sector has now decreased with many banks having made substantial reductions in the size of their balance sheets as well as holding increased levels of capital to meet the new regulatory requirements. However, the other aim of the tax was to raise £2.5bn a year and so, as balance sheets have shrunk, the rate of the tax has been steadily increased (seven times now) to try to maintain the tax take. Our figures therefore show that the Bank Levy is now draining profits out of the banks and undermining efforts to strengthen their capital base."
“The Government announced a new consultation on the design of the Bank Levy in last week’s budget and we understand this will focus on how Levy charges can be fixed in a banding system to simplify budgeting for individual banks and to assist HMRC in estimating yield."
“While this is to be welcomed, our findings indicate that the burning issue is not getting budgeting right, but rather addressing the overall burden that the Levy is imposing on the shrinking UK banking sector – a burden that is now out of balance with its initial policy objectives.”
KPMG’s research shows that between 2011 and 2013:
The UK Government could, once again, undershoot its revenue target for Bank Levy receipts in 2013:
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-------------------------------------------------------------------------------------------------- HSBC Holdings plc; Barclays plc; Lloyds Banking Group plc; Royal Bank of Scotland Holdings plc; Standard Chartered plc. All figures taken from published annual results.
 The underlying corporation tax effective rates of tax (excluding Bank Levy) were: 30.25% in 2011 and 57.98% in 2013.
 The underlying corporation tax effective rates of tax (excluding Bank Levy) were: 23.16% in 2011 and 32.98% in 2013.
 Office for Budget Responsibility: Economic and Fiscal Outlook, March 2014
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.