UK to bring in bank balance sheet levy

22 June 2010

British chancellor George Osborne has outlined plans to introduce a banking levy in the UK in his first Budget.

The tax is to take effect from January 1st 2011 and will apply to the consolidated balance sheets of British banks and building societies, as well as the British-based operations of international banks.

It is forecast that the levy will raise around £2 billion ($2.95 billion) a year for the British Treasury.

The tax is to be based on each bank's net worth, with the government intending that implementing it in this fashion will encourage financial institutions to work on getting "less risky funding profiles".

A statement from the Treasury said: "The regulatory reforms underway are aimed at ensuring that no firm is too big to fail and that all firms are resolvable.

"The levy is a contribution reflective of economic risk, it is not an insurance against failure or a fund for future resolution."

When the tax is originally introduced next year it will be at a rate of 0.04 per cent.

However, from 2012 a rate of 0.07 per cent will apply.

The French and German governments have announced today (June 22nd 2010) that they will also be implementing similar levies on their banking sectors.

Following the announcement by Mr Osborne, a note of caution over the tax was sounded by the British Bankers' Association (BBA).

A statement from the organization called on the government to ensure that the tax does not hurt British national interests, noting that while banks may be based in the UK they do business on a global scale.

It called for bank levies to be "co-ordinated internationally" as a result.

A spokesman for the BBA said: "It is essential that the international banks do not find themselves taxed multiple times for the same thing."

By Tony Aynsley

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