The UK government has introduced a permanent levy on banks’ balance sheets, a move expected raise GBP2.5bn per year in revenue once fully implemented.
The levy, introduced on January 1, is intended to encourage banks to move to less risky funding profiles, and the revenues raised would represent, according to the government, “a fair contribution in respect of the risks the banking system poses to the wider economy, while ensuring that the industry remains competitive.”
The government also hopes that the levy will encourage the banks to make greater use of more stable sources of funding, such as long-term debt and equity.
The rate for 2011 will be 0.05%, and it will rise to 0.075% from 2012 onwards.
Financial Secretary to the Treasury, Mark Hoban said on January 1:
“The levy which comes into force today means that banks will now make a full and fair contribution in respect of the potential risks they pose to the wider economy. This measure will also encourage banks to reduce their dependence on the riskier, short term funding that was one of the main causes of the financial crisis.”
“Once fully in place the bank levy is set to raise GBP2.5 billion per annum and this will go towards helping reduce the record budget deficit that this Government inherited.”
In addition to introducing a bank levy, the UK government is also examining ways to discourage the payment of “unacceptable” bonuses to bank employees.