The UK, German and French Governments have announced they will be introducing a bank levy from January 2011.

The levy will be based on banks' balance sheets. France will present the details of its bank tax in the coming Budget while Germany announced a framework for a national bank levy at the end of March and will present draft legislation in the Cabinet in summer.

The UK levy will apply to the consolidated balance sheet of UK banking groups and building societies and the aggregated subsidiary and branch balance sheets of foreign banks and banking groups operating in the UK.

Banks will only be liable for the levy where their relevant aggregate liabilities amount to £20bn or more.

It is proposed that the levy will be set at 0.07 per cent which is expected to raise over £2bn annually. There will be a lower starting rate of 0.04 per cent in 2011.

There will also be a reduced rate for longer-maturity wholesale funding.

All three levies will aim to ensure that banks make a fair contribution to reflect the risks they pose to the financial system and wider economy, and to encourage banks to adjust their balance sheets to reduce this risk.

The specific design of each may differ to reflect the different domestic circumstances and tax systems, but the level of the levy will take into consideration the need to ensure a level playing field.

A statement from the UK Treasury today said: "The French, UK and German Governments are committed to the full implementation of the ambitious G20 financial sector reform agenda and look forward to discussing these proposals further with international partners at the G20 summit in Toronto on 24 June."