The government's policy on the banking levy is incoherent. According to the Treasury, the levy is designed to ensure banks pay the social costs of their failure: in other words, the levy should compensate taxpayers for the cost of bailouts.
This may seem reasonable at first sight - especially if the levy were related to the risks that banks take. However, the government has also established an Independent Commission on Banking, which it expects to provide better legal frameworks for banks so they can go bust at no cost to the taxpayer. In other words, it is firm government policy that the very problem at which the levy is aimed will be resolved in the near future.
I am particularly suspicious of the announcement being made yesterday. The government is taking a lot of unjustified flak for not taxing bankers' bonuses. It has reacted by announcing an increase in the bank levy for this year and pledging to make the levy permanent. The justification is weak - the government is saying the banks are better capitalised and can afford to pay. However, if they are better capitalised, they are less risky and, therefore, the levy is more difficult to justify. But I think we see the underlying reason when we hear the Chancellor say the revenue is just going into general government coffers to help reduce