Banks hit by £2.5bn levy

The government yesterday said it would press ahead with plans to hammer banks with a £2.5bn-a-year levy.

Mark Hoban, the financial secretary to the Treasury, unveiled draft legislation that paves the way for the tax to come into force in January.

It will be introduced in two parts, eventually earning the exchequer £2.5bn-a-year from 2012-13

The levy, which is designed to make banks eschew riskier forms of funding, will apply to all UK banks and UK subsidiaries of foreign banks as long as their liabilities exceed £20bn.

Certain financial sources – such as insured customer deposits, long-term debt and equity – will be excluded from the levy, Hoban said, in a bid to encourage banks to use these types of funding at the expense of riskier sources.

However, after a summer of consultation with the banking industry, the Treasury said it had decided to alter the structure of the levy.

Uninsured deposits will now be levied at half the normal rate, for example.

And the levy will only apply to financial institutions that derive at least 50 per cent of their business from banking, effectively meaning insurance companies will be unaffected.
The government also acknowledged that it would have to make allowances for foreign banks that were subject to similar levies in their home countries, to ensure they aren’t subject to double taxation.

Meanwhile, Hoban confirmed that the government was still considering a Financial Activities Tax (FAT) on remuneration and profits, as well as stricter rules governing bonuses.

In his spending review earlier this week, chancellor George?Osborne said he wanted to extract “maximum sustainable revenue” from the banking industry.