Final legislation on the bank levy

Following two periods of consultation since June, the final legislation contains changes to the rate of the levy.

The rate for 2011 will be 0.05%, rather than 0.04%, and it will rise to 0.075% from 2012, instead of the 0.07% announced in June.

These changes, along with the introduction of an allowance, rather than a threshold, for those liabilities to which the levy applies, will generate around £2.5 billion of annual revenues. This is in line with the Budget estimates.

The levy is intended to encourage banks to move to less risky funding profiles, and the £2.5 billion is a fair contribution, according to Hoban, in respect of the risks the banking system poses to the wider economy, while ensuring that the industry remains competitive.

The levy will take effect from 1 January 2011 and will be permanent.

Mark Hoban 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."