Spending Review: New levy on banks to raise £2.5bn
- 21 October 2010
- From the section Business
A new bank levy will raise about £2.5bn a year from 2012, according to draft legislation published by the government.
The levy will apply to the global balance sheets of UK banks and the UK operations of overseas banks, the Treasury said.
The legislation will encourage banks to take fewer funding risks, it added.
But the banking industry says the tax could undermine the attractiveness of the UK as a financial centre.
The legislation hopes to achieve two objectives, according to Mark Hoban, financial secretary to the Treasury.
"Firstly, ensuring that banks make a fair contribution in respect of the potential risks they pose to the UK financial system and wider economy," he said.
"Secondly, the final scheme design incentivises banks to make greater use of more stable financial sources, such as long term debt and equity."
Banks were consulted on the legislation over the summer.
The levy is not expected to affect smaller banks and building societies.
The British Bankers' Association warned the levy would have an "significant impact" on the more than 200 overseas banks operating here.
"The Treasury's statement is largely silent on how this levy would interact with taxation in other countries," the BBA said.
"Until this is clearer, some banks could be taxed multiple times by multiple jurisdictions on the same activities," it added.
The organisation said it would work with the Treasury to ensure the final levy maintained the UK's position as the world's financial centre.
However, others think the tax does not go far enough given the scale of the cuts to public spending announced in the Spending Review on Wednesday.
TUC general secretary Brendan Barber said the bank levy was "small change".
He also accused banks of avoiding tax obligations by offsetting their losses during the financial crisis against their tax bills.
"Banks caused the global financial crash and triggered the recession that produced the deficit," he said.
"Yet not only did they take almost a trillion pounds from taxpayers to bail them out, they are now using the losses caused by their irresponsibility to cut their tax bills for years to come."
The levy differs from 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.
The final rates will not be finalised until the end of the year, but will be less than 0.1%.
Uninsured retail deposits will be subject to a half rate.
June's Budget documents had suggested the levy would be set at 0.04% in the first year and would then rise to 0.07%.
Chancellor George Osborne said on Wednesday that he wanted "to extract the maximum sustainable tax revenues from financial services".
"We neither want to let banks off making their fair contribution, nor do we want to drive them abroad," the chancellor said, as he unveiled to MPs the results of the Spending Review, which will see £81bn cut from public spending over the next four years.
"Many hundreds of thousands of jobs across the whole United Kingdom depend on Britain being a competitive place for financial services."
Mr Osborne also made it clear that he expected the major banks to sign a new code of practice on tax avoidance.
So far only four of the 15 leading banks operating in the UK have joined up, but the chancellor says he wants all of them to do so by the end of November.
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.