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Spending Review: Banks hit by new levy

Spending Review: Banks hit by new levy

Category: Banking

Updated: 21/10/2010
First Published: 21/10/2010

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Draft legislation regarding the levy to be imposed on banks has been revealed, as the finer details of the comprehensive spending review continue to emerge.

With the banks having borne the brunt of the blame for the financial crisis, Chancellor George Osborne said yesterday that although he did not want to drive them abroad, given the amount of people they employ, he did not want to 'let them off' either.

Now the Treasury has confirmed that a new levy based on banks' balance sheets will be introduced from 1 January 2011, with the aim of encouraging banks to take fewer risks when it comes to their funding.

As well as applying to UK banks, the levy will also be made on overseas banks which have operations on these shores. The levy will be permanent and is expected to generate around £2.5 billion of annual revenues for the Treasury coffers by 2012-13.

"We have consulted on the design of the scheme so that it achieves two objectives," said Financial Secretary to the Treasury, Mark Hoban MP.

"Firstly, ensuring that banks make a fair contribution in respect of the potential risks they pose to the UK financial system and wider economy,"

"Secondly, the final scheme design incentivises banks to make greater use of more stable financial sources, such as long term debt and equity, working with the grain of our wider reform programme."

Final legislation confirming exactly how the levy will work will be published before the end of the year. In addition to the levy, the Government said it is taking action to tackle unacceptable bank bonuses.

The city regulator, the Financial Services Authority, has been asked to examine ways of strengthening the link between the performance and pay of bank employees to ensure that their incentives are aligned with the long-term performance of their employer.

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