The UK’s bank levy has effect in relation to periods of account ending on or after 1 January 2011. Whilst it is already in force, the relevant legislation will only be included in Finance Bill 2011.
In broad terms, the levy will apply to the balance sheet liabilities of banking groups to the extent that such liabilities (after stripping out Tier 1 capital, insured retail deposits and certain other items) exceed £20 billion. It had previously been announced by HM Treasury that the levy would be set at a rate of 0.075 % from 2012 with an initial rate of 0.05% in 2011. Each of these rates is halved for certain liabilities which are treated more favourably, namely most deposits not already excluded from the levy and liabilities with a maturity greater than one year at the balance sheet date.
However, on 8 February the position changed significantly, with the Chancellor announcing an increase in the 2011 bank levy rate. Given that we are already in February, the rates applying to January and February 2011 will remain at the 0.05% previously announced. March and April will be charged at a higher rate of 0.1%, with the levy moving to the full rate of 0.075% with effect from 1 May 2011. Once again, the half rates will apply for deposits and longer term liabilities.
The overall impact of this is that a bank with a December year end will pay very close to 50% more bank levy for this year than previously expected. HM Treasury has forecast the extra yield at £800 million, and banks will need to react quickly to this change which potentially affects business planning and pricing decisions.
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Tom Aston, Partner, KPMG
