LONDON (Reuters) - The UK government has decided to further restrict banks’ ability to use pre-2015 losses to offset profits when calculating their corporation tax, in a move that could generate just over 2 billion pounds in tax revenues by 2021.
The change, announced by Chancellor George Osborne in his annual budget statement on Wednesday, will see the government recoup an expected additional 330 million pounds of revenues in 2016-7.
The Treasury said the reform, which cuts the amount of profit banks can offset from 50 percent to 25 percent from April 1, was aimed at maintaining the exceptional treatment of banks in levying corporation tax because of the 2008-9 financial crisis and the industry’s various misconduct scandals.
“These restrictions are particularly harsh for the banks, which have large amounts of losses to set against future profits,” said Andrew Watters, tax partner at Thomas Eggar.
Gary Greenwood, analyst at Shore Capital, said the move could impact Royal Bank of Scotland and Lloyds Banking Group the most since they made the biggest losses before 2015.
However, shares in the UK’s leading banks remained mostly flat following news of the changes.
Some analysts had feared Osborne would announce a hike in an annual levy on lenders’ assets but the rate was left unchanged.
Osborne earlier said he would miss a target for bringing down public debt this year, but stuck to his plan to get the public finances back into the black by the end of the decade.
The government also said it was on track to sell most of its stakes in bailed-out lenders RBS and Lloyds by 2020.
The Treasury said it planned to sell RBS shares worth 25 billion pounds ($35.22 billion) by 2020 and return the remainder of its under 10 percent stake in Lloyds to the private sector by March 2017.
Shares in both banks bailed out at the height of the financial crisis are struggling to rise above the level the state paid for them, forcing the government to postpone an eagerly anticipated sale of Lloyds stock to retail investors.
RBS’s shares have plunged 22 percent this year, falling to their lowest level in more than three years after the bank reported its eighth straight full-year loss.
Shares in Lloyds are trading at 69 pence compared with a so-called break-even price for the government holding of 73.6 pence.
The government also said on Wednesday it would sell off loans held by former mortgage lender Bradford & Bingley over the next two years to help repay 15.65 billion pounds borrowed from taxpayers to rescue the bank.
Editing by Sinead Cruise and Greg Mahlich