Once fully in place the levy is expected to raise 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 in respect of the risks the banking system poses to the wider economy, while ensuring that the industry remains competitive.
The rate for 2011 will be 0.05%, and it will rise to 0.075% from 2012 onwards.
The government has consulted on the design of the scheme and believes 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.
Commenting, Financial Secretary to the Treasury, Mark Hoban said: “The levy which comes into force today means that banks will now make a full and fair contribution in respect of the potential risks they pose to the wider economy. This measure will also encourage banks to reduce their dependence on the riskier, short term funding that was one of the main causes of the financial crisis.
“Once fully in place the bank levy is set to raise £2.5 billion per annum and this will go towards helping reduce the record Budget deficit that this Government inherited.”
