Unpredictable taxes will damage confidence

February 10, 2011 9:00 AM

The Government’s surprise tax raid on banks’ balance sheets on Tuesday has been condemned by investors and business groups. The £800 million increase in the bank levy to £2.5 billion has contributed to fears of the UK’s business climate becoming increasingly unpredictable with the element of surprise and unpredictability being more damaging than the financial cost of the tax itself. Peter Maybrey of PricewaterhouseCoopers said:
“[The levy] is likely to be seen as disadvantageous to the competitiveness of banking in the UK as much for its unpredictability as for the increase in the tax burden.”

A large institutional investor with large stakes in banks told The Telegraph:
“The extra hit on the banks is one thing, but we can’t operate in an environment where this sort of tax can be slapped on at any time. These are public companies, are we now saying the Government can plunder them every time it’s under political pressure? We need to understand that this is not going to happen again.”

[caption id="" align="alignright" width="195" caption="Predicting future tax rises"][/caption]

That’s the problem with arbitrarily raiding companies. Politicians get to spend the money, but businesses have to wonder how many more ‘one off’ taxes might be coming. And other companies start to worry whether they might be next in line. And that means that when they’re next in a position to decide whether or not to expand and create prosperity and jobs in order to make profits, they will have to worry about whether or not those profits will be raided by Government. You don’t need a doctorate in economics to see that this will hurt jobs and growth.

As City AM editor Alastair Heath said yesterday morning, the idea that this won’t hurt the economy is “the budgetary equivalent of perpetual motion”.The Government’s surprise tax raid on banks’ balance sheets on Tuesday has been condemned by investors and business groups. The £800 million increase in the bank levy to £2.5 billion has contributed to fears of the UK’s business climate becoming increasingly unpredictable with the element of surprise and unpredictability being more damaging than the financial cost of the tax itself. Peter Maybrey of PricewaterhouseCoopers said:
“[The levy] is likely to be seen as disadvantageous to the competitiveness of banking in the UK as much for its unpredictability as for the increase in the tax burden.”

A large institutional investor with large stakes in banks told The Telegraph:
“The extra hit on the banks is one thing, but we can’t operate in an environment where this sort of tax can be slapped on at any time. These are public companies, are we now saying the Government can plunder them every time it’s under political pressure? We need to understand that this is not going to happen again.”

[caption id="" align="alignright" width="195" caption="Predicting future tax rises"][/caption]

That’s the problem with arbitrarily raiding companies. Politicians get to spend the money, but businesses have to wonder how many more ‘one off’ taxes might be coming. And other companies start to worry whether they might be next in line. And that means that when they’re next in a position to decide whether or not to expand and create prosperity and jobs in order to make profits, they will have to worry about whether or not those profits will be raided by Government. You don’t need a doctorate in economics to see that this will hurt jobs and growth.

As City AM editor Alastair Heath said yesterday morning, the idea that this won’t hurt the economy is “the budgetary equivalent of perpetual motion”.

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