Bank levy risks double-dip recession

The new levy to hit the banks could stunt the City’s growth spurt and take us back into recession.

Financial institutions have been under fire from all sides in recent months and following the Chancellor’s Budget speech, the size of the new levy could completely de-rail the financial recovery, according to financial author Lawrence Galitz – City expert and founder of the global financial training company, ACF Consultants.

"The large new levy on banks may be one step too far in terms of new financial restrictions and could cause a double-dip recession," he said.

"The Chancellor should just be taxing a bank’s profits. Taxing their balance sheet will have knock-on effects that could reverse the recent economic growth.

"Banks have had a lot of pressure applied since the start of the financial crisis and now they’re showing some green shoots rather than being protected, they’re being hit with more restrictions. Taxing the banks to raise £2billion is double the figure that was originally mooted."

Chancellor George Osborne’s Budget confirmed the new tax on banks, previously detailed at his Mansion House speech last week, would start from January 2011.

The levy is the latest restriction to hit the banking community following the bans on naked CDS trading announced in Germany and France earlier this month.

Lawrence said that although the banking sector was recruiting furiously, private institutions would not want to hire ex-public sector professionals - despite thousands of them expected to be out of work in the coming years.

"We are seeing an increase in banks recruiting this year, rather than the decrease we saw last," Galitz said.

"Even so it’s not surprising banks are not so keen to recruit ex-public sector employees – personality profiles are likely to be very different. I think it works the other way round too – putting an ex-banker in charge of a healthcare trust is unlikely to be a good fit."