New FPC remit and bank levy changes

New FPC remit and bank levy changes

Chancellor George Osborne has revealed a new remit for the Financial Policy Committee, changes to the bank levy and a review of claims management companies as part of his summer Budget.

Mr Osborne used his Budget speech to announce that he had issued a fresh remit to the FPC focusing partly on productive investment, innovation and competition in finance.

In a letter to Bank of England governer Mark Carney, Mr Osborne said that while the FPC should remain committed to financial stability, it should also consider how its actions might affect competition and innovation, and their impact on the international competitives of the UK financial system.

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Under the Bank of England Act 1998, as amended by the Financial Services Act 2012, the chancellor must specify at least once a year what the economic policy of the Government is and recommend what issues the FPC should consider as relevant to the Bank of England’s financial stability objective.

The Chancellor also revealed that the bank levy rate would decrease from 0.21 per cent to 0.18 per cent from 1 January 2016, with this continuing to drop each calendar year afterwards until 2021.

However, an 8 per cent surcharge on the profits of banking companies will come into force from 1 January 2016.

The surcharge will be calculcated on the same basis as for corporation tax, but with some reliefs added back.

According to the three-page HM Revenue and Customs document, Bank Levy: Rate Reduction, the changes will bring in £415m for the Exchequer in 2016/2017, £555m in 2017/2018, £365m in 2018/2019, £225m in 2019/2020 and £105m in 2020/2021.

Only institutions with more than £20bn of chargeable liabilities will be liable to pay the bank levy.

Anna Anthony, EMEIA head of financial services tax at EY, said: “A reduction in the rate and scope of the bank levy will be very welcome news for the sector, and can be seen as an acknowledgement from the government that the UK does need to remain a competitive location for global financial services companies.

“The introduction of an 8 per cent surcharge sounds high, but is likely to be more acceptable than the levy because it at least has a direct link to the profitability of an institution.”

Mr Osborne also announced that a review of the regulation of claims management companies would be led by Carol Brady, chairman of the Chartered Trading Standard Institute Board, reporting to HM Treasury and the ministry of justice in early 2016.

A note in the 123-page Budget said: “In addition, there is also a case for reform of the fees that CMCs charge consumers, particularly in those instances where consumer complaints fall within the remit of the Financial Ombudsman Service.

“Therefore, the Government will bring forward proposals for the introduction of a cap on the charges that CMCs can apply to their customers, and will consult on how this will work in practice.”