Financial Secretary to the Treasury, Mark Hoban MP, announced today 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 percent, and it will rise to 0.075 per cent from 2012, instead of the 0.07 per cent 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 £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 levy will take effect from 1 January 2011 and will be permanent.
Mark 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.
Notes for Editors
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 profiles.
The initial consultation document, the government’s response to the consultation and the draft legislation can all be found via the HM Treasury website at http://www.hm-treasury.gov.uk/fin_bank_levy.htm
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. 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 is currently revising its remuneration code and provisions will be in place by 1 January 2011 that 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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