UK banks and building societies are to be hit with a levy in a move to raise about £2bn a year, the chancellor has announced.
The levy is part of a joint move between the UK, France and Germany.
George Osborne said the financial crisis began in banking so it was fair that banks contributed to the recovery.
But the British Bankers’ Association warned that the levy must not harm job creation nor weaken the UK’s strength in financial services.
The levy, which will not affect smaller banks and building societies, will be brought in from January 2011.
Mr Osborne said: “It will apply to the balance sheets of UK banks and building societies, and to the UK operations of banks from abroad.”
He said a joint statement on the issue was due to be issued shortly simultaneously in London, Paris and Berlin.
Critics of slapping a levy on banks have said that it cannot work without international co-ordination.
Mr Osborne said: “This was a crisis that started in the banking sector and the failures of the banks imposed a huge cost on the rest of society.
“So it is fair and right that in future banks should make a more appropriate contribution which reflects the many risks that they generate.”
In the weeks before the election there was speculation that the chancellor was looking to raise about £3bn from a bank levy, and possibly even as much as £5bn.
Hardest hit
Robert Peston, the BBC’s business editor, said: “Some may say [the banks] got off lightly, with a levy to raise a maximum of £2.5bn by 2013-14.
“It will be a tax on the total size of their balance sheets, minus their insured retail deposits and their capital, and with a lower rate applicable to longer-term wholesale funding.”
On this basis, he believes, banks Lloyds TSB and Royal Bank of Scotland are likely to pay the largest chunks of the levy, followed by Barclays and then HSBC.
Although full details of the shape and structure of the levy have yet to emerge, analysts said it was likely to be similar to the one proposed by US President Barack Obama.
However, that tax, which would charged at 0.15% of banks’ net liabilities, and aims to raise up to $117bn over 10 years, has yet to be passed by Congress.
Warning
The British Bankers’ Association (BBA) said it accepted the reasons for a levy, but warned that it must not be allowed to hurt the competitiveness of the UK as a financial centre.
“The banking industry fully understands the part it must play in helping the UK’s economic recovery,” the BBA said.
“The banks are committed to working with the government to ensure new bank levies balance tax raising objectives with the need to keep the recovery moving”.
However, the BAA added: “The UK is a trading nation and we must ensure bank taxes do not hurt our national interests or provide an unfair advantage for other businesses operating here.
“We are a large financial centre and a great many jobs are created here as a result… So bank levies need to be co-ordinated internationally: they must not prevent the industry in the UK from being able to compete.”
By BBC
Tags: businesses, European economy, eurozone economy, financial crisis, Financial Markets, loan, money, wall street
