Business

Spending Review: Bank levy to be made permanent

  • 20 October 2010
  • From the section Business

A levy on bank balance sheets will be made permanent, potentially raising billions of pounds, Chancellor George Osborne has confirmed.

The chancellor said he would introduce legislation on Thursday in order "to extract the maximum sustainable tax revenues from financial services".

He said he wanted banks to make a fair contribution.

The banking industry said the move would have an impact, particularly on overseas banks operating here.

The government expects the levy to generate about £2.5bn a year.

"We neither want to let banks off making their fair contribution, nor do we want to drive them abroad," the chancellor said.

"Many hundreds of thousands of jobs across the whole United Kingdom depend on Britain being a competitive place for financial services," he added.

The levy is not expected to affect smaller banks and building societies but the UK operations of foreign banks will have to pay the levy.

The British Bankers' Association said that banks "fully understand they have a role to play in the UK's economic recovery".

"Decisions taken today will have an effect on the whole industry and particularly on overseas banks operating in the City," it added.

"We clearly need to see the detail of today's announcements to be able to assess their impact on the UK banking sector and our attractiveness as a global financial centre."

But it added that it was pleased that the chancellor had indicated the government wanted to strike a balance between raising tax revenues and keeping the UK's financial services sector competitive.

The levy is expected to be introduced in January and differs to the previous government's tax on bank bonuses.

It will be a tax on the total size of bank balance sheets, but certain items, including retail deposits covered by insurance and bank capital will be excluded.

According to June's Budget documents, the levy will be set at 0.04% in the first year and will then rise to 0.07%.

Code of practice

The chancellor also reiterated that he wanted all of the UK's top 15 banks to sign up to a code of practice on taxation introduced by the previous government.

He said that only four banks had signed up so far and had earlier set a November deadline for the rest to comply.

The code of conduct seeks to deter banks from avoiding tax, and follows reports that many banks have used complex transactions and financial instrument to avoid tax.

The code calls on banks to ensure that their tax and the tax obligations of their customers are observed - and that they do not go out of their way to avoid tax for themselves or clients

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