A tough regime for banks is one thing – singling them out for punitive treatment is quite another.
The UK government's bank levy – basically a tax on bank liabilities – falls into the second category and it is unsurprising that HSBC is re-evaluating where its headquarters should be: in the UK, where taxes are high, or Hong Kong, where they are low? True, other push factors have been cited, such as whether the UK will remain in the EU and the country's ring-fencing of domestic bank for regulatory purposes. But, it is the bank levy that hurts most. As a UK bank with global operations, HSBC finds all its liabilities taken into consideration when calculating the levy, whereas a foreign bank operating in the UK would only be liable on its UK deposits and funding. Hence, HSBC and Standard Chartered, another UK bank with global operations, are playing on a very unlevel field.
Both HSBC and Standard Chartered have had their reputational issues and rightly have been called to account on these. They have also been heavily fined. At the same time, both banks came through the crisis relying on their own financial resources, and without the need for taxpayer support.
The bank levy is a political tax rather than an economic tax, which means it will give poor outcomes. The wider issue facing the UK and other governments is how to raise tax from multinationals, which can more or less declare what they like, where they like. A UK initiative on this has been dubbed 'the Google tax'. It would be far more sensible to work on this problem across all sectors rather than singling out banks with likely negative consequences.
Brian Caplen is the editor of The Banker.
