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THE BANK TAX EXPLAINED

Q.WHICH INSTITUTIONS WILL THE TAX APPLY TO?

A.The levy will be based on the balance sheets of UK?banks and building societies, the UK branches of foreign banks and the foreign branches of UK banks. For example, Société Générale’s operation in London will be hit the same as Barclays Capital’s unit in Paris.

Q.WHY IS THE LEVY JUST SEVEN BASIS POINTS OF LIABILITIES?

A.Some politicians and campaigners, notably the Robin Hood Tax pressure group, would have liked to have seen chancellor George Osborne go further. The tax level the?Treasury has settled on was the result of discussions with the banking community, and is seen as politically acceptable by both sides. Osborne will also have considered the tough capital requirements looming under forthcoming Basel III rules, which will ask banks to hold billions of pounds extra in collateral.

Q.WHAT ARE FRANCE, GERMANY AND AMERICA DOING?

A.Osborne said he had reached agreement with German chancellor Angela Merkel and French President Nicolas Sarkozy ahead of his announcement yesterday. While Britain will enter a consultation with the industry over the summer, Sarkozy is preparing a national bank levy for his next Budget. Merkel published a framework for a similar tax at the end of March and is due to present draft legislation in July or August. US President Barack?Obama in January proposed a levy of 15 basis points on balance sheets to raise $117bn (£79bn) over 10 years.