The Government has released the details of its bank levy, which is expected to raise around £2.5bn a year by the 2012-2013 tax year.
The tax will be introduced in January 2011 and will apply to UK banks and the UK operations of banks domiciled abroad.
It will force banks to contribute to the Government’s package of tax rises and spending cuts while encouraging them to take fewer risks. The final rate will be finalised towards the end of the year and will be levied based on the total size of banks’ balance sheets.
Financial Secretary to the Treasury Mark Hoban says the Government has consulted on the design of the scheme so that it achieves two objectives.
He says: “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 was announced in the June Budget and confirmed in yesterday’s spending review announcement by Chancellor George Osborne.
A statement from the British Bankers’ Association says: “The banks are committed to playing their part in restoring the UK economy.
“The banking industry paid more than £26bn in taxes last year and the bank levy will increase this figure. This bank levy applies not only to UK banks but also to the more than 200 overseas banks operating in this country. Changes to the detail have been made during the consultation period but inevitably the levy will have a significant impact.
“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.”