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Bank Levy (Draft Legislation)

Volume 516: debated on Thursday 21 October 2010

The Government have published draft legislation on the bank levy announced as part of the Budget in June.

The Government believe that banks should make a full and fair contribution in respect of the potential risks they pose to the UK financial system and wider economy. The Chancellor therefore announced as part of the June Budget that the Government will introduce a levy based on banks’ balance sheets to take effect from 1 January 2011. Following on from this announcement, and consistent with the Government’s approach to tax policy making, the Government published a consultation document in July. Following the conclusion of the consultation on 5 October, the Government are now taking forward the policy process by publishing the relevant draft legislation.

The levy has been designed to encourage less risky funding and complements the wider agenda to improve regulatory standards and enhance financial stability. It will apply to the global balance sheets of UK banks, and the UK operations of banks from other countries. Once fully in place, the levy is expected to generate around £2.5 billion of annual revenues.

The consultation sought views on a number of technical aspects of the design and implementation of the levy. The Government have considered carefully the responses from all interested parties. The draft legislation sets out the Government’s policy decisions on aspects of the design, including:

the £20 billion threshold is replaced by an allowance;

a principles based approach for the netting of derivatives and other assets and liabilities;

a deduction for high-quality liquid assets; and

uninsured customer deposits (except for those from financial institutions) will be subject to the half rate.

The draft legislation is accompanied by explanatory notes and a consultation response summarising the Government’s policy decisions. Final draft legislation will be published towards the end of the year, alongside final confirmation of the rate of the levy, as part of consolidated draft clauses planned for the Finance Bill 2011.

Copies of the draft legislation, explanatory notes and consultation response are available in the Vote Office and have been deposited in the Libraries of both Houses. Copies of these documents are also available via the HM Treasury and HM Revenue and Customs websites.