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UK bank levy will be made permanent

Thursday 21 October 2010 - by Nicola York

UK financial secretary to the Treasury Mark Hoban

The introduction of a UK bank levy expected to generate £2.5bn ($4bn/€2.8bn) by 2012/13 will be permanent, the coalition Government announced today.

The measure was first announced in the June Budget, shortly after the coalition came to power, and is intended to encourage banks to move to less risky funding profiles.

The levy will not be charged on the first £20bn (€22.5bn/$31.5bn) of chargeable liabilities.

It will apply to the global consolidated balance sheet of UK banks and building societies as well as aggregated UK-group and UK subsidiary balance sheets, together with a proportion of the balance sheets of foreign banks operating in the UK through permanent establishments which are members of foreign banking groups.

Companies are exempt from the levy if at least 90 per cent of a company's trading income comes from exempt activities or at least 50 per cent of its trading income derives from non financial trading activities.


Exempt activities are insurance, asset management and non financial trading.

The Government consulted with industry over the summer to set out the draft legislation which has been released today.

The rates will not be finalised until the end of the year but are not expected to be more than 0.1 per cent.

The British Bankers' Association says: "Questions are being raised about the UK proposing to apply tax to a global balance sheet.

"The Treasury’s statement is largely silent on how this levy would interact with taxation in other countries. Until this is clearer, some banks could be taxed multiple times by multiple jurisdictions on the same activities.

"There is also no international consensus on how banking activities should be taxed: the G20 members still hold very different views."

Financial secretary to the Treasury Mark Hoban says: “We have consulted on the design of the scheme so that it achieves two objectives: firstly, ensuring that banks make a fair contribution in respect of the potential risks they pose to the UK financial system and wider economy.

“Secondly, the final scheme design incentivises banks to make greater use of more stable financial sources, such as long term debt and equity, working with the grain of our wider reform programme."

The levy will be implemented in the Finance Bill from January 2011.


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