Government plans to raise £2.5bn with bank levy

Britain's banks will pay an extra £2.5 billion in tax a year by 2012 under draft legislation published today in a Government move to repair some of the damage caused by their role in the financial crisis.



The levy will apply charges to the global balance sheets of UK banks and the British operations of foreign firms, the Treasury said.



Unveiling the legislation, Mark Hoban MP, financial secretary to the Treasury, said the levy would not just raise money but "encourage less risky funding".



He said: "The scheme achieves two objectives: 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."



The levy will replace the Labour Government's one-off bonus tax introduced earlier this year, which charged 50% on all windfalls above £25,000 - raising over £2 billion.



The draft legislation said the Treasury would have the power to offer tax relief to those banks that faced double taxation, because they operate in other countries where the levy applies.



But the British Bankers' Association warned the levy would have a significant impact on the more than 200 overseas banks operating in the UK.



It said: "Questions are being raised about the UK proposing to apply tax to a global balance sheet.



"The Treasury's statement is largely silent on how this levy would interact with taxation in other countries. Until this is clearer, some banks could be taxed multiple times by multiple jurisdictions on the same activities.



"There is also no international consensus on how banking activities should be taxed - the G20 members still hold very different views."



Revealing his highly anticipated spending review yesterday, Chancellor George Osborne also confirmed all UK banks would be asked to sign up to a tax code of conduct by the end of next month.



So far, only four out of 15 banks have signed up to the code under which they agree not to design avoidance schemes to reduce their bills or those of their clients. Part-nationalised banks Royal Bank of Scotland and Lloyds are believed to be two of the banks to sign up.



There are fears the tough measures on the banking sector could lead to an exodus of players, with groups such as HSBC and Standard Chartered signalling potential willingness to quit the UK.



But Mr Osborne said banks should share the pain of measures to repair the deficit caused by the financial crisis and added that he and his coalition colleagues "neither want to let banks off their fair contribution, neither do we want to drive them abroad".



Initial details in the summer Budget showed the levy would be charged at a lower rate of 0.04% in the first year - generating an expected £1.15 billion - rising to 0.07% or £2.3 billion in 2012/13 and up to £2.5 billion in 2013/14, and the Treasury said these details were yet to be finalised.



The developments come as experts predict UK bank bonuses will reach around £7 billion this year after the sector's marked recovery since the credit crunch.



US players such as Goldman Sachs and JP Morgan Chase have already revealed bumper pay and salary pots earmarked for staff after a better-than-expected third quarter.



TUC general secretary Brendan Barber said: "This is a pathetically small amount to demand from the banks. Ministers have come up with the smallest number that they think they can get away with, even though the banks are carrying forward £19 billion of tax losses to offset against future tax bills - losses that have been bailed out by the taxpayer."

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Graduate Recruitment Resourcer

£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence