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By Ben Stupples
The U.K.’s Labour Party has failed in its attempt to reverse banking sector tax cuts in a move that would have derailed the legislative process for the government’s latest finance bill.
In a Dec. 11 House of Commons debate, the party tried to prevent lawmakers voting on the U.K.’s Finance (No. 2) Bill 2017 – 19 , partly on the basis that it fails to reverse tax cuts for banks. Yet the lawmakers rejected the objection and later approved a preliminary version of the bill.
The bill includes a phased reduction in the bank levy, cutting it from 21 percent to eventually 10 percent in 2021.
Due to their large profits and business activity, banks are a common point of focus in the U.K.’s tax debates. HSBC Holdings Plc, the U.K.’s largest bank, reported 2016 pre-tax profits of $7.1 billion earlier this year. As a sector, banks contribute almost 10 percent of the U.K.’s corporate tax receipts.
Labour are the official opposition party in the House of Commons to the government. Since 2010, the Conservative Party have held the most seats in the lower house of U.K. parliament.
In the debate, Labour lawmakers called for a reversal of the government’s 2015 cut to the bank levy. Introduced in 2011 to encourage banks to take fewer lending risks, the levy applies to banks’ balance sheets and was originally expected to raise 8.4 billion pounds ($11.2 billion) over four years.
At the 2015 Summer Budget, however, then-Chancellor of the Exchequer George Osborne brought in the plans for a phased reduction in the levy.
In addition, Osborne narrowed the levy’s scope in the same year to ensure that it applies only to a bank’s U.K. balance sheet. In guidance published this year, the government said the more narrow scope is part of a package to provide a “sustainable basis” for taxing the U.K.’s banking sector.
With these changes, the government are “denying themselves 4.7 billion pounds of tax revenues from banks over five years,” Labour lawmaker Anneliese Dodds said during the finance bill debate.
But Conservative lawmaker and Exchequer Secretary to the Treasury Andrew Jones rebutted Dodds’s claims, noting that in 2011, Labour voted against introducing the levy.
The debate also comes after Bloomberg Tax revealed last month that the U.K. government has stepped up its plans to name and shame banks that break the sector’s tax code of conduct.
Her Majesty’s Revenue and Customs, the U.K. tax authority, has been using recruiters to line up an independent reviewer to assess future cases of a lender breaking its code of tax conduct for banks.
HMRC must seek the reviewer’s opinion before it can publicly name a misbehaving bank.
In its Oct. 18 annual report on the code, HMRC said it has concerns on a “small number” of lenders. A “sub-set of these continue to push the boundaries of acceptable tax planning,” it added.
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