George Osborne’s Spending Review statement included a description of the Government’s plans for financial regulation and a banking levy. He outlined the Government’s plans to put the Bank of England in charge of regulation. He said the Government has set up the Independent Commission on Banking to look at the structure of the industry. He said the Government now wants to set out clearly its reasons for taxing the banking industry going forward. The Government does not want to let banks off making their fair contribution, but it does not want to drive them abroad. He confirmed there will be a permanent levy on banks. BBA said the announcement was not unexpected, and that it would wait to assess the full legislation. On 21 October, the Government published the draft legislation and feedback to its consultation on the bank levy. The levy will apply in relation to periods of account ending on or after 1 January 2011. It will apply to defined UK banking groups, building society groups, foreign banking groups and relevant non-banking groups and also to certain banks and building societies that are not members of groups. The draft legislation sets out the steps needed to determine the amount of the levy. Changes from the original proposals include:
- clarifying that if overall more than 50% of a group's activities are non-financial it will not be a banking group;
- replacing the proposed £20 billion threshold with an allowance, to prevent banks structuring their business to avoid crossing the threshold;
- a principles-based approach to netting derivatives and other assets and liabilities, assuming there is a legal right of set-off under a master netting agreement with a particular counterparty;
- replacing the proposed exemption for repos secured on sovereign debt with a deduction for high-quality liquid assets and an exemption for liabilities relating to notes in circulation backed by appropriate assets;
- applying the deposits exemption to deposits covered by a statutory or state-run guarantee or insurance scheme, and introducing a half-rate for uninsured customer deposits (except those from financial institutions); and
- introducing a de minimis limit so liabilities of certain small subsidiaries will not need to be aggregated, subject to an overall cap.
The Government wants to publish final legislation towards the end of 2010, which will form part of the Finance Bill 2011. Treasury asks for comments on the draft legislation by 19 November.