Ministers launch bank levy consultation

By Jaimie Kaffash

13 July 2010

The government has today launched a consultation on the bank levy proposed in the June Budget.

Ministers hope to raise around £2.5bn a year from the levy, which is being introduced to reflect the ‘potential risk to the UK economy from bank failures’, the consultationdocument says. The deadline for responses is October 5. Draft legislation will be published towards the end of this year for inclusion in the 2011 Finance Bill.

Mark Hoban, finance secretary to the Treasury, said: ‘Excessive risk-taking in the banking sector was a significant contributory factor in the recent financial crisis. 

‘Alongside the wider financial regulatory reform aimed at increasing the resilience of the financial sector, the levy is intended to ensure that the banking sector makes a fair contribution that reflects the risks it poses to the financial system and the wider economy, and to encourage banks to move away from riskier funding.’

However, the new chair of the Treasury select committee, Andrew Tyrie, told the British Bankers' Association conference today: ‘There is a clear tension facing policymakers. The myriad of measures in the pipeline — increasing capital and liquidity ratios, the introduction of a bank levy tax and possibly even a financial activities tax — could each serve further to constrain banks’ ability to lend.

‘There is no point in pretending that the introduction of measures to promote financial stability, and to make the banks bear a greater share of the costs they have imposed on the rest of society, is costless or risk-free, however popular these measures may be. All things being equal they will reduce lending.’

Businesses have also said that the levy could backfire on the government. The British Chambers of Commerce’s head of communications, Sam Turvey, said: We understand the motivations for a bank levy. But our interest is not in the levy itself but what it means for bank lending to business.

'Everything to do with a levy must be couched in the context of how it affects businesses ability to get an efficient and reliable service from the banks. If a levy negatively impacts on lending, we cannot support it. The BCC’s aim is to see bank lending return to normal conditions – poorly thought-through policies or the desire to bash the banks will not help that happen.’