Policy paper

Bank Levy: rate reduction

Published 8 July 2015

Who is likely to be affected

UK banks, banking groups and building societies, foreign banking groups operating in the UK through permanent establishments or subsidiaries and UK banks and banking sub groups in non-banking groups.

General description of the measure

This measure sets out the rate at which the Bank Levy will be charged for the next 6 years. The Bank Levy rate will decrease from 0.21% to 0.18% from 1 January 2016 and will continue to decrease each calendar year thereafter until 2021.

A proportionate decrease to 0.09% with effect from 1 January 2016 will be made to the half rate, with corresponding reductions being made each following calendar year until 2021.

Policy objective

Banks should continue to make a fair contribution in respect of the potential risks they pose to the UK financial system and wider economy. As the banking sector recovers and profitability improves, the government believes it is now appropriate to reform how banks are taxed.

The government will reduce the rate at which the Bank Levy is charged and introduce a surcharge on the profits of banking companies. The government will also set the rate at which the Bank Levy is charged for the next 6 years. It is estimated that the revenue raised by the surcharge will offset Bank Levy reductions over the forecast period.

Background to the measure

This measure was announced at Summer Budget 2015.

The government announced the introduction of the Bank Levy at Budget 2010 to commence for chargeable periods ending on or after 1 January 2011. This staged reduction is being introduced in conjunction with a new surcharge to be charged on banking profits.

Detailed proposal

Operative date

The new rates of Bank Levy will apply on and after 1 January 2016, with future rates specified for application in each calendar year up to 2021.

Current law

The Bank Levy rates are set out in paragraphs 6 and 7 of Schedule 19 to the Finance Act (FA) 2011 as amended by section 211 of FA 2011, paragraphs 1 to 7 of Schedule 34 to FA 2012, section 202 of FA 2013, section 119 of FA 2014 and section 76 of FA 2015.

Proposed revisions

Legislation will be introduced in Summer Finance Bill 2015 to amend paragraphs 6 and 7 of Schedule 19 to FA 2011.

For periods falling wholly or partly after 1 January 2016 the rate applying to chargeable equity will be decreased from 0.21% for short term chargeable liabilities and from 0.105 for long term chargeable liabilities to the rates outlined below:

Rate period Rate for long term chargeable equity and liabilities Rate for short term chargeable liabilities
1 January 2016 to 31 December 2016 0.09% 0.18%
1 January 2017 to 31 December 2017 0.085% 0.17%
1 January 2018 to 31 December 2018 0.08% 0.16%
1 January 2019 to 31 December 2019 0.075% 0.15%
1 January 2020 to 31 December 2020 0.07% 0.14%
Any time on or after 1 January 2021 0.05% 0.10%

Summary of impacts

Exchequer impact (£m) 2015 to 2016 2016 to 2017 2017 to 2018 2018 to 2019 2019 to 2020 2020 to 2021
nil +415 +555 +365 +225 +105
These figures are set out in Table 2.1 of Summer Budget 2015 as 'Banks: 8% Corporation Tax Surcharge and changes to Bank Levy' and have been certified by the Office for Budget Responsibility. They represent the combined Exchequer impact of 'Bank corporation tax surcharge' and 'Bank Levy: rate reduction'. More details can be found in the policy costing’s document published alongside Summer Budget 2015.
Economic impact This measure is not expected to have any significant long-term macroeconomic impacts. It is estimated that the revenue from the surcharge will offset bank levy reductions over the forecast period.
Impact on individuals, households and families The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts The measure is not expected to have a direct or disproportionate impact on any of the protected equality groups.
Impact on business including civil society organisations This measure is expected to have a negligible impact on businesses. It will only affect banking business with liabilities in excess of £20 billion and amendments to the rate are expected to have a negligible administrative impact. Banks are expected to incur a negligible one off cost to become familiar with the change in legislation. This measure will have no impact on civil society organisations.
Operational impact (£m) (HMRC or other) There will be no significant impacts.
Other impacts Competition assessment: the scope of the bank levy has been specifically designed to ensure a level playing field for all those affected by it in the UK. Small and micro-business assessment: the banks, building societies and banking groups affected by the bank levy are not small businesses, as only institutions with over £20 billion of chargeable liabilities are liable to pay the Bank Levy. Other impacts have been considered and none have been identified

Monitoring and evaluation

Receipts from the bank levy are being monitored on an ongoing basis.

Further advice

If you have any questions about this change, please contact Charlotte Hopwood on Telephone: 03000 585950 email: charlotte.hopwood@hmrc.gsi.gov.uk.