Budget 2015: Bank levy to shrink but 8% tax added

Budget 2015: Bank levy to shrink but 8% tax added

Chancellor George Osborne pledged today to reduce the bank levy with an 8 per cent surcharge on profits, coming into force at the start of 2016.

The bank levy, an annual tax based on balance sheets of both UK banks and overseas banks doing business in the UK, had been gradually raised from 0.05 per cent to 0.21 per cent in recent years. Last year it raised £2.2bn for the Treasury.

But Mr Osborne said the bank levy now risked “doing harm” to the economy by making banks uncompetitive so he would reduce the levy gradually throughout the next six years.

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However, the chancellor said he would also introduce an 8 per cent “surcharge” on bank profits, coming into force from the start of 2016.

He said the surcharge would mean the Treasury would receive more money from the banks than through the bank levy without reducing the competitiveness of the industry.

The bank levy will be reduced to 0.18 per cent from January 2016, then to 0.17 per cent in January 2017, with further annual reductions taking it to 0.1 per cent from January 2021.

From January 2021 the levy will also only apply to the UK balance sheet liabilities of banks and not their overseas exposure.