The new coalition Government announced that it will introduce an annual levy based on bank’s balance sheets from 1 January 2011.  The levy will apply to UK banks and overseas banking groups carrying on business in the UK and is aimed at reducing both risk taking within the financial services sector and the impact of future systemic crises.

This levy will be based on total liabilities of banks (i.e. both short and long term liabilities). The banking institutions and groups will only be liable to pay the levy where their relevant aggregate liabilities amount to £20 billion excluding tier one capital, insured retail deposits, repo secured on sovereign debts and policy holder liabilities of retail insurance businesses within banking groups.  The levy like the bank payroll tax will not be deductible for corporation tax purposes.

The Government added that the levy is based on the work undertaken by the International Monetary Fund and is a contribution reflective of economic risk and not an insurance against failure or fund for future resolution of financial crises.  The final details of the levy will be published later this year following consultation over the summer of 2010. [1]