The Treasury yesterday outlined its plan for the levy, which it plans to introduce in stages from 2011, and asked the industry to give its feedback by 5 October. The levy was announced in the Conservative-Liberal Democrat coalition’s emergency Budget on 22 June.
Along with European peers France and Germany, Britain has been pushing for banks to pay for their part in the financial crisis and to encourage them to move away from risky funding, which helped trigger the liquidity crunch.
Alongside the release of a consultation paper yesterday, financial secretary to the Treasury Mark Hoban said banks should make a fair contribution in relation to the risks they pose to the financial system and economy.
He said: “The structure of the levy is intended to encourage the banks to move away from riskier funding models, reducing systemic risk. Once fully in place, we expect the levy to generate around £2.5bn of annual revenues.”
The move has been criticised amid fears it could disadvantage the UK compared with countries that refuse to introduce similar measures and the British Bankers Association has warned UK banks could become less competitive as a result. Not all banks are included, with smaller institutions left outside the levy’s scope.
Banks are also being urged to commit to lending more to small businesses at the same time as improving their own financial strength. However, some critics have warned the levy could mean banks do not free up funding for SMEs as they are forced to meet new capital requirements and contribute to the bailout fund.
Philip Monks, chief executive of upstart bank Aldermore, said: “Excluding the new breed of banks like ourselves from the banking levy is not enough – we want to see all SME lending excluded from the levy. Lending to SMEs is absolutely vital for the economic recovery, so taxing that activity is incredibly counterproductive.”