The Government announced a further increase in the bank levy and indicated that this was, in effect, to offset the 2% reduction in corporation tax from next year. In his speech, the Chancellor also made reference to some of the initiatives that will be funded by the projected £2.5 billion that will be generated annually from the levy: £250 million will fund the new shared-equity scheme, First Buy; and £100 million is to be invested in new science facilities.
The bank levy was introduced with effect from January 2011. It is based on the balance sheets of UK banking groups and building societies; the aggregated subsidiary and branch balance sheets of foreign banks and banking groups operating in the UK; and the balance sheets of UK banks in non-banking groups. Initially, it was stated that the rate of the levy would be charged at a rate of 0.07% with a reduced rate for wholesale funding with more than one year remaining to maturity of half the main rate. However, those rates were amended subsequently. The levy only applies where the aggregate long and short-term liabilities of the institution or group were at least £20 billion, excluding Tier 1 capital, insured retail deposits, repos secured on sovereign debt, and policyholder liabilities of retail insurance businesses within banking groups.
The bank levy will increase to 0.078% for short-term chargeable liabilities and to 0.039% for long-term chargeable equity and liabilities from 1 January 2012. The rates of the levy are:
(i) 0.05% and 0.025% between 1 January 2011 to 28 February 2011;
(ii) 0.1% and 0.05% between 1 March 2011 to 30 April 2011;
(iii) 0.075% and 0.0375% between 1 May 2011 to 31 December 2011; and
(iv) 0.078% and 0.039% thereafter
for short-term and long-term chargeable liabilities respectively.