The Chancellor announced that the Government will introduce a bank levy from
1 January 2011.
A joint statement was also released by the UK, French and German
The levy will apply to:
• the consolidated balance sheet of UK banking groups and building societies;
• the aggregated subsidiary and branch balance sheets of foreign banks and
banking groups operating in the UK; and
• the balance sheets of UK banks in non-banking groups.
These institutions and groups will only be liable for the levy where their relevant
aggregate liabilities, as set out below, amount to £20 billion or more. In calculating
branch liabilities and Tier 1 capital, the Government proposes to use the principles
applied to the capital attribution methodology used for Corporation Tax purposes.
The levy will be based on total liabilities (i.e. both short and long term liabilities)
• Tier 1 capital;
• insured retail deposits;
• repos secured on sovereign debt; and
• policyholder liabilities of retail insurance businesses within banking groups.
The Government proposes that any derivative liabilities will only be taken into account
where they are net derivative positions, but will consider the technical details of this
and other aspects of the levy design in consultation with industry over the summer.
It is proposed that the levy will be set at 0.07 per cent which is expected to raise over
£2 billion annually. However, there will be a lower rate of 0.04 per cent in 2011. There
will also be a reduced rate for longer-maturity wholesale funding (i.e. greater than one
year remaining to maturity) to be set at 0.02 rising to 0.035 per cent; half the main rate.
The levy will not be deductible for Corporation Tax.
There will be anti-avoidance provisions to prevent avoidance of the levy. HM Revenue
and Customs will administer the levy.
The levy is intended to encourage banks to move to less risky funding profiles. The
Government believes that banks should make a fair contribution in respect of