The Government has upped the rate of its planned tax on Britain’s banks, draft legislation has revealed.
The Treasury outlined in Thursday’s draft Finance Bill 2011 that it will increase the rate from an initially proposed 0.04% to 0.05% in its first year from January 1 2011 and up from 0.07% to 0.075% in subsequent years.
The bank levy, which will apply to the global balance sheets of UK banks and the British operations of foreign firms, is designed to repair some of the damage caused by banks in the financial crisis.
A consultation paper on the proposed bank tax also confirmed lenders with a balance sheet of less than £20 billion will be exempt from the tax. It is expected to raise £2.6 billion a year by the end of 2012.
Mark Hoban MP, financial secretary to the Treasury, said: “We have consulted on the design of the scheme so that it achieves two objectives.
“First, ensuring that banks make a fair contribution in respect of the potential risks they pose to the UK financial system and wider economy.
“Second, the final scheme design will encourage the banks to make greater use of more stable sources of funding, 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.
But there are fears the bank levy could impact the UK’s competitiveness.
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.