Overview

Yesterday HM Treasury published the eagerly anticipated consultation document on the proposed bank levy. The levy will, the Government hopes, 'encourage banks to move away from riskier funding' and will see the banks making 'an appropriate contribution' to reflect the risks to the economy generated by them. The overall intention is to 'increase the resilience of the financial sector'.
The key pillars of the new levy are as follows:

• It will be effective from 1 January 2011;
• It will be imposed at 0.07%. A reduced rate of 0.04% will apply for 2011. There will also be a reduced rate for longer-maturity funding (i.e. greater than one year remaining to maturity at the operative balance sheet date) to be set at 0.02% rising to 0.035%;
• It will be paid by those institutions which (a) constitute a UK banking group / building society or are UK subsidiaries or branches of foreign banking groups operating in the UK and (b) have relevant aggregate liabilities of £20 billion or more;
• Liability to pay the levy will be assessed using the global consolidated balance sheet. The levy will be based on total liabilities and equity excluding: Tier 1 capital, insured retail deposits, repos secured on sovereign debt, and policyholder liabilities of retail insurance businesses within banking groups; and
• It will be imposed and administered by HM Revenue & Customs.

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