HSBC’s headquarters in London. HSBC is the bank hardest hit by the tax, which slashes £750mn from the lender’s profit a year.

Bloomberg
London


Chancellor of the Exchequer George Osborne faces a dilemma constructing his first budget in a majority Conservative government: how to give banks enough concessions to keep them in the UK without angering voters facing deeper austerity.
Osborne is considering whether to alter the UK bank levy as HSBC Holdings examines whether to stay in London. HSBC is the bank hardest hit by the tax, which slashes £750mn ($1.2bn) from the lender’s profit a year.
The British Bankers’ Association last month sent a letter to the government urging a review of taxes on the industry.
The need to offer a gesture to banks and retain Britain’s attractiveness as a financial centre will mean a difficult juggling act for the chancellor, who has pledged to push through tough austerity plans promised before the election.
The day after thousands took to London’s streets to demonstrate against spending cuts, he reiterated his intention to find £12bn of savings a year from welfare.
“Osborne can be nicer to the banks and claim it’s for the good of the wider economy while cracking on with the cuts,” said Steve Fielding, a professor of politics at the University of Nottingham. “It’s an ideal time for him to do both. Finessing the levy is the way to do it, and at this moment in time, Labour is not in a position to say or do very much.”
A spokesman for the Treasury declined to comment on the budget.
The BBA, which represents HSBC and other domestic and foreign lenders such as Standard Chartered and Deutsche Bank AG, warned Financial Secretary to the Treasury David Gauke that hiking taxes on banks could drive them from the country.
Osborne didn’t mention the tax his annual speech to bankers in London’s Mansion House on June 10.
If the levy is altered to focus only on bank assets in the UK, rather than worldwide, analysts say Osborne may benefit HSBC at the expense of Lloyds Banking Group and government- owned Royal Bank of Scotland Group, which are almost completely focused on British business.
“The biggest issue for banks is obviously the levy: if the chancellor doesn’t say anything about it, that’s huge - it means HSBC moves to Hong Kong for sure,” said Chirantan Barua, an analyst at Sanford C Bernstein Ltd in London. “The way to change it to keep HSBC is to apply the levy only to the UK portion of the balance sheets and increase it, which means that there will be relief for HSBC but a much bigger impact on Lloyds and RBS.”
HSBC would see its levy halved to £552mn from £1bn in 2016 with such a change, Barua estimates. By contrast, Lloyds would see its bill more than double to about £740mn from the current £300mn, and RBS would pay £478mn compared with £224mn.
Standard Chartered, which like HSBC makes most of its earnings in Asia, has said it’s also keeping its London headquarters under review. It’s one of the top issues facing new Chief Executive Officer Bill Winters. Under Barua’s revised scenario, the bank’s estimated share of the levy would fall next year to 68mn pounds from £359mn.