What has Osborne done today?

In October last year, Osborne announced a new levy on banks’ balance sheets. It was 0.05 percent for this calendar year, before rising to 0.075 percent from 2012 onwards. But, today, the Chancellor has announced that the ‘introductory’ rate has been abolished – so banks will be charged the 0.075 percent rate on all liabilities. Here’s my nine-point Q&A, by way of delivering my take:

1) So, a retrospective tax? Not quite. He’s imposing a 0.05 per cent rate on balance sheets in January and February. But he’ll up the charge to 0.1 percent for March and April to compensate. It will go back to 0.075 percent in May. This is a move clearly intended to generate revenue, rather than change behaviour.

2) How much will he nab? The Treasury reckons today’s move will net £800 million this year – but this, of course, depends on how many of the globalised banks will keep their profits in London. The Treasury is still programmed with Gordon Brown’s so-called “static” tax assumptions, whereby it assumes that people will keep working at the same rate even if the tax goes up. Specifically, the Treasury now projects that the bank levy will raise £2.5bn in 2011, the same in 2012 and then £2.6bn a year in 2013 and 2014.

3) It’s all a bit sudden. What explains the timing? It’s unclear – but this certainly gives Osborne a piece of political ammo. He can say, rightly, that the coalition is being harder on the banks than Labour ever were. For comparison, Labour’s temporary payroll tax on bankers’ bonuses raised an estimated £3.5bn in 2011/12 – although Osborne claims that this was only worth a net £2.3bn due to lost National Insurance and income tax revenues as a result of banks lowering their bonus payments .

4) What will the banks do? Moan in private, but say nothing in public. They realise there is a hang-a-banker mood in Britain, and that the government is playing along with it. Osborne even inserted a banker-bashing passage in his Spending Review speech. They won’t moan, because they are global and can declare tax anywhere. The bonus tax has already sent jobs out of London, and extra bank profit tax will just force banks to simply expand elsewhere – in countries where they are not seen as an ATM machine.

5) The banks make billions. Will an extra 0.075 percent tax really make a difference? Yes, given how mobile this all is. What worries the City is the banker-bashing mood as a whole: regulation, personal tax, corporation tax, the lot. The Commission on Banking is examining the merits of separating institutions’ retail and investment banking divisions. Any moves along these lines will be deeply disruptive to Barclays, HSBC and RBS. The state-owned banks will stay put, but those who have fought hard to avoid any taxpayers’ help will resent such action.

6) Osborne has said he is an ally of the City and that the 50p tax is temporary. But there’s an old saying that ‘nothing is more permanent than a temporary government tax’. The Tories remain concerned about polling suggesting they’re the party for the rich – and may keep the 50p tax in place for political reasons, to try to change this perception. Business tends to judge politicians on what they do, not what they say. And Osborne is actually increasing this to a 52p tax in April. That will leave Britain with the third top tax rate on the planet (second to Sweden and Denmark).

7) Any evidence that they’ll move so far? Those who advise the government insist not. British-born bankers (who represent only half of the City) sit on dinner tables with ministers and say their kids are at school here, the time zone is great: why would they move? The regulators are also adamant that banks will stay put. Adair Turner, head of the FSA, says that talk of banks moving to Asian is “a fantasy”. But, crucially, banks don’t have to move. They just expand elsewhere. The risk is that the banking recovery, when it comes, will reap dividends for Singaporean taxpayers rather than British ones.

8) Who would want to do business in Singapore? Its government has been wooing British companies (one of the many Mark Kleinman exclusives) and to great effect. Take Standard Chartered, nominally a British bank. It is hiring 2,000 extra people in Singapore, and one of its British chieftains has gone so far as to revoke his British citizenship. The chairman of HSBC told the Commons last week that the jobs it is creating in Singapore could have been created in London. He added “The bank levy is a tax on our global balance sheet not just our UK balance sheet – it is a tax on being headquartered here … Investors are routinely asking us now to explain the costs and benefits of being in the UK. There are going to be more inputs into that decision going forward”

9) But surely the profit is being made in Asia – and this, not any bank tax, is why they’re off? Without a doubt, Asian fund manager income is up by 22 percent – it’s 4 percent in Britain. In an ordinary political environment, London should be trying its hardest to become attractive to banks to retain these golden geese. The banker-bashing – the language, the regulation and the extra taxes – will instead serve to accelerate this trend. High taxes redistribute people, not wealth – but countries go through phases when they forget this.

10) And where will this £800 million go? Intriguingly, we don’t know. Osborne has not said it’s for deficit reduction – which implies it’s earmarked for a purpose. Here’s one hypothesis. In the last few months, they’ve come up with some new schemes that need new money (governments always do this, given enough time). But there being no money to dole out, they went a-hunting in corporate balance sheets to find some more. And the £800 million will be used to ease some political headaches. Tim Montgomerie wonders if it will go to “Big Society” charities, because the original plan – where banks would fork out money for the BS agenda – didn’t seem to be happening. With the budget due in six weeks, we’ll know soon enough.