The OBR commissions forecasts of bank levy receipts from HM Revenue & Customs (HMRC) for each fiscal event. The forecasts start by generating an in-year estimate for receipts in the current year, then uses a model to forecast growth in receipts from that starting point. We provide HMRC with assumptions for how the tax base will change in future that are used to generate the tax forecasts. These are scrutinised in a challenge process by the Budget Responsibility Committee (BRC) and OBR staff. This process allows the BRC to refine the assumptions and judgements that underpin the forecasts before they are published in our Economic and fiscal outlooks.
Bank levy receipts are estimated by multiplying the value of chargeable bank and building society liabilities by the corresponding tax rate.
Outturn data on the chargeable liabilities of banks and building societies are only available with a long lag. For each institution, HMRC therefore estimate chargeable liabilities for the calendar year accounting period that payments are currently being made for using cash receipts received during the current financial year. Most banks and building societies liable to the levy follow calendar year accounting periods and pay HMRC on a quarterly basis between 7 and 16 months after the liability was incurred.
For forecast years, we assume that this estimated value of chargeable liabilities follows a downward trend, based on our judgement of how the balance sheets of larger UK banks are likely to evolve. From 2021 onwards, we also account for the planned reduction in scope of the tax base, which will only cover UK-based liabilities from then on.
Both the short- and long-term levy rates are set to fall over the forecast period until 2021, after which current policy is that they will remain at 0.10 and 0.05 per cent respectively.
Main forecast determinants
We do not link our forecast of the bank levy tax base to any specific determinants from our economy forecast. Our March 2018 judgement about the size of the tax base was informed by recent historical trends and an assumption that the pace of deleveraging in respect of leviable liabilities is likely to slow over the forecast period.
Main forecast judgements
The most important judgements in our bank levy forecast are:
- In-year estimate – our estimate for bank levy receipts in the current year is determined by year-to-date performance of receipts and indications from HMRC’s internal receipts monitoring. The in-year estimate determines the base year from which we use our model to forecast receipts growth.
- The trend in chargeable liabilities – the chargeable liabilities of banks and building societies have fallen in recent years, based on the latest outturn data. This reflects trends in both the overall size of balance sheets and their composition. Since detailed data on the size and composition of banks’ and building societies’ balance sheets are only available with a long lag, we must judge whether this recent trend will persist across the forecast.