Britain’s scandal-hit banks were harnessed by the Chancellor today to support the UK recovery.
Announcing the Coalition’s latest plans to shore up the nation’s finances, George Osborne revealed it aims to raise £20billion from selling off assets in state-backed Lloyds, Northern Rock and Bradford & Bingley.
Delivering his final Budget before the General Election in May, Osborne also clobbered UK banks with a £5.3billion tax raid. This included the ninth hike in the bank levy since it was introduced in 2011, in a move expected to raise an extra £4.4billion over the next five years.
Payback time: Britain’s scandal-hit banks were harnessed by the Chancellor today to support the UK recovery
The remainder will be generated by closing a controversial loophole which has allowed banks to class compensation payments that were made to customers as a business expense, thereby reducing their tax bill. Osborne said: ‘Five years ago, we were bailing out the banks. Today, I can tell the House: we’re selling more bank shares and getting taxpayers’ money back.’
The Government is aiming to raise at least £9billion by selling off Lloyds shares in the 2015-16 tax year. This is on top of the £8.5billion already recovered since the Government rescued Lloyds with a £20billion bail-out.
The Chancellor and UKFI, which manages taxpayers’ stakes in bailed out banks, have agreed they should take advantage of ‘favourable market conditions’ to accelerate the sell-off of Lloyds shares.
In a letter to Osborne, UKFI chief executive James Leigh-Pemberton cited the European Central Bank’s €60billion a month money printing programme and Lloyds’ return to profit and resumption of dividends. He said this ‘has created favourable sentiment towards the shares and have made it possible for a broader range of investors, including income funds, to invest in them’.
If the Government achieves its latest target it would whittle down its stake from 23 per cent to 7 per cent. The Government has been gradually selling down its stake but is expected to launch a retail offering after the election.
Time to sell: The Government is aiming to raise at least £9billion by selling off Lloyds shares in the 2015-16 tax year
Today it said it also plans to ditch assets held by Northern Rock and Bradford & Bingley when they had to be nationalised during the crisis. This includes the £13.2billion ‘Granite’ book of risky mortgage loans established by Northern Rock in 2001 that the taxpayer has been saddled with and Government-backed UK Asset Resolution has been tasked with selling off.
The Government estimates selling off these assets will generate £11billion in 2015-16, meaning it expects to raise £20billion in total from selling of bank assets during the year. Jonathan Isaby, chief executive of the Taxpayers’ Alliance welcomed the efforts to dispose of bank assets more quickly.
He said: ‘Taxpayers will be pleased that the burden of propping up the banks is gradually being lifted. Whoever is in power after the election, they must prioritise getting the banks back into the private sector where they belong as soon as practically possible.’
But the Chancellor angered the City after launching a £5.3billion tax raid on Britain’s banks.
Changing times: Announcing the Coalition’s latest plans to shore up the nation’s finances, George Osborne revealed it aims to raise £20billion from selling off assets in state-backed Lloyds, Northern Rock and Bradford & Bingley
The bulk of this is from increasing the bank levy from 0.156 per cent of banks’ global balance sheets to 0.21 per cent from next month, in a move that is expected to raise more than £900million a year.
The increase is likely to hit HSBC the hardest as it has the biggest balance sheet of any bank in Europe.
Its contribution rose by a fifth to around £740million ($1.1billion) last year. Barclays was the second biggest contributor, paying £462m.
Antony Browne, chief executive of the British Bankers’ Association said banks already pay £40billion in taxes each year.
He argued the raid was ‘good politics but bad economics’ and will damage the UK banking sector.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.