BBC News - Spending Review: Details of bank levy outlined

21 October 2010 Last updated at 10:52

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Spending Review: Details of bank levy outlined

The banking industry says the levy could undermine the UK's attractiveness as a financial centre

The government has published draft legislation on how a new levy on bank balance sheets will operate.

It will apply to the global balance sheets of UK banks and the UK operations of banks from other countries and will be introduced in January 2011, the Treasury said.

By 2013, it is expected to raise about £2.5bn ($4bn) a year.

The legislation will encourage banks to take fewer risks with their funding, the Treasury added.

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The legislation hoped to achieve two objectives, according to Mark Hoban, financial secretary to the Treasury:

"Firstly, ensuring that banks make a fair contribution in respect of the potential risks they pose to the UK financial system and wider economy," he said.

"Secondly, the final scheme design incentivises banks to make greater use of more stable financial sources, such as long term debt and equity."

Banks were consulted on the legislation over the summer.

Chancellor George Osborne said on Wednesday he wanted "to extract the maximum sustainable tax revenues from financial services".

"We neither want to let banks off making their fair contribution, nor do we want to drive them abroad," the chancellor said as he unveiled to MPs the results of the Spending Review, which will see £81bn cut from public spending over the next four years.

"Many hundreds of thousands of jobs across the whole United Kingdom depend on Britain being a competitive place for financial services."

The levy is not expected to affect smaller banks and building societies.

Warning

The British Bankers' Association has warned that the new levy could undermine the competitiveness of the UK as a banking centre.

However, it said its members "fully understand they have a role to play in the UK's economic recovery".

On Wednesday, Mr Osborne also made it clear that he expects the major banks to sign a new code of practice on tax avoidance.

So far only four of the 15 leading banks operating in the UK have joined up, but the chancellor says he wants all of them to do so by the end of November.

The code calls on banks to ensure that their tax and the tax obligations of their customers are observed - and that they do not go out of their way to avoid tax for themselves or clients.

via bbc.co.uk