The UK government has announced that the rate of bank levy payable during 2011 will be increased to 0.075% (from 0.05%) for short-term liabilities and 0.375% (from 0.05%) for long-term liabilities. It was always intended that bank levy would be charged at these rates from 2012.

The bank levy is not a tax on income, profit or gains. It applies to foreign banks that operate in the UK, as well as to UK entities. It is a charge on balance sheet liabilities and equity (after stripping out Tier 1 capital, insured retail deposits and certain other items) but only to the extent that they exceed £20 billion. Certain long-term liabilities are charged at half rate.

As the announcement was only made in February, the rate for January and February will remain at the previously announced 0.05% and the rate for March and April will be at higher (0.1%), in order to catch up. From 1 May 2011, the main rate of 0.075% will apply. This change means that a bank with a December year end will pay 50% more levy than previously expected for 2011.

A serious unresolved problem is the treatment of double taxation where levies are charged in different countries in respect of the same operations. Since the UK levy will apply to the consolidated balance sheet of a UK headquartered banking group, there is the prospect of double taxation where other countries impose bank levies on branch or subsidiary operations in their territory. The UK authorities are discussing this problem with foreign authorities but so far they have indicated that they hope to publish soon draft regulations detailing an agreement with France and that negotiations with Germany are advanced. One difficulty is that the bank levies being introduced differ in scope, base and rates. It is to be hoped that the necessary agreements will be finalised and published soon. Given that the start date for the UK levy was 1 January 2011, they will have to be introduced with retrospective effect.