Bank levy poses risk to UK’s financial sector

Bank levy imposed by conservative government over the last few years poses significant challenge for UK's strong financial sector.

Since the crisis UK's recovery has been led by services sector industry, among which financial services remain a significant part. Labour party's demise in the election has provided some relief to the sector, even then policies pursued by current government remains a headache.

• UK first introduced bank levy in 2011, however increased 9 times since then. Latest rise came in March' budget moving the rate to 0.21%. Pace of increase has been quite frustrating for banks.

• This is leading foreign banks to consider moving business out of London and shift operations abroad.

Both HSBC and Standard Charted are planning to move their headquarters from London to Asia. Citigroup, JPMorgan and UBS are also looking to move large chunk of the operations.

According to sources familiar to the matter the levy is hurting bank's repo business as they tend to operate in low margin environment.

Some of the bankers are expecting current government to reduce the levy as they gained majority. Even then significant risk remain over UK's status in European Union. Banks in London might be exposed to financial transaction tax and tougher EU regulation, should the negotiation fail and people of UK choose to remain in EU.

Bank's exit from UK would be bad for UK's economy and pound, which as of now istrading close 1.542 against dollar.