Government introduces bank levy
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Issued on 01 January 2011 - HM Treasury
The Government today introduced a permanent levy on banks’
balance sheets as it believes that banks should make a full and fair
contribution in respect of the potential risks they pose on the wider
Once fully in place the levy is expected to raise around £2½
billion of annual revenues. This is in line with the Budget estimates.
The levy is intended to encourage banks to move to less risky
funding profiles, and the £2½ billion is a fair contribution in respect
of the risks the banking system poses to the wider economy, while
ensuring that the industry remains competitive.
The rate for 2011 will be 0.05 per cent, and it will rise to
0.075 per cent from 2012 onwards.
The government has consulted on the design of the scheme so
that it achieves two objectives: first, ensuring that banks make a fair
contribution in respect of the potential risks they pose to the UK
financial system and wider economy. Second, the final scheme
design will encourage the banks to make greater use of more stable
sources of funding, such as long-term debt and equity, working with the
grain of our wider reform programme.
Financial Secretary to the Treasury, Mark Hoban said:
“The levy which comes into force today means that banks will
now make a full and fair contribution in respect of the potential risks
they pose to the wider economy. This measure will also
encourage banks to reduce their dependence on the riskier, short term
funding that was one of the main causes of the financial crisis.
“Once fully in place the bank levy is set to raise £2.5
billion per annum and this will go towards helping reduce the record
Budget deficit that this Government inherited.”
1. In the June Budget, the Government announced that
it would introduce a levy based on banks’ balance sheets from 1 January
2011, intended to encourage banks to move to less risky funding
the initial consultation document, the Government’s response to the
consultation and the draft legislation.
3. Following two periods of consultation since June,
the final legislation contained changes to the detailed design and rate
of the levy. The rate for 2011 will be 0.05 per cent, rather than 0.04
percent, and it will rise to 0.075 per cent from 2012, instead of the
0.07 per cent announced in June. This change in rate reflects changes
to the detailed design of the levy, in particular extending the half
rate treatment (for longer maturity liabilities) to cover retail
deposits not covered by deposit insurance or guarantees, and the
introduction of an allowance, rather than a threshold, for those
liabilities to which the levy applies. With these changes the levy will
generate around £2½ billion of annual revenues, which is in line with
the Budget estimates.
4. In addition to introducing a bank levy, the
Government is taking action to tackle unacceptable bank bonuses. The
Independent Commission on Banking will look at structural and
non-structural measures to reform the banking system and promote
competition. What’s more, working with international partners, the
Government is exploring the costs and benefits of a Financial
Activities Tax on profits and remuneration. Separately, the Financial
Services Authority (FSA) has today introduced its revised remuneration
code, which will ensure bonuses for material risk-takers are deferred
over a number of years and are linked to the performance of the
employee and their firm. Significant portions of these bonuses will
have to be paid in shares or other securities.
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Article Published/Sorted/Amended on Scopulus 2011-01-06 11:53:02 in Tax Articles