UK Forges Ahead With Bank Levy

by Jason Gorringe, Tax-News.com, London

13 December 2010

Financial Secretary to the UK Treasury, Mark Hoban, has announced the publication of final legislation to implement the bank levy announced in the June Budget.

Following two periods of consultation since June, the final legislation contains changes to the rate of the levy. The rate for 2011 will be 0.05 per cent, rather than 0.04%, and it will rise to 0.075% from 2012, instead of the 0.07% announced in June.

These changes, along with the introduction of an allowance, rather than a threshold, for those liabilities to which the levy applies, will generate around GBP2.5bn of annual revenues, in line with the Budget estimates.

According to the government, the levy is intended to encourage banks to move to less risky funding profiles, and is considered "a fair contribution in respect of the risks the banking system poses to the wider economy."

The levy will take effect from January 1, 2011 and will be permanent.

Hoban said: "We have 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."

A further tax on bank bonuses, alongside new disclosure rules for top income earners is also said to be under consideration by the Treasury.

Friction among coalition partners is causing Chancellor George Osborne to review the policy. The Business Secretary, Vince Cable (Liberal Democrat) has repeatedly made clear his views about the City’s bonus culture. He believes that those banks failing to show sufficient restraint should be made subject to an additional levy.

However, Osborne is thought to be concerned that continued speculation regarding potential punitive measures may harm the standing of the UK financial sector.

Previous recommendations submitted by Sir David Walker who had investigated bank bonuses for the previous Labour government, are believed to be under review. He suggested that banks should be forced to disclose the numbers of employees who earn over GBP1m.

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