Government increases bank levy to £2.5bn

The chancellor George Osborne has announced an increase in the rate of the bank levy to be charged in 2011.

This change will increase the revenue from the levy in 2011 by £800m to £2.5bn.

The government initially announced that a reduced rate of 0.05% would apply in 2011. But the government no longer considers this necessary.

Therefore, from March 1 the rate of the levy will be 0.1% for two months, to offset the lower rate of 0.05% charged in January and February, before moving to 0.075%.

The Bank of England recently noted that the near-term outlook and resilience of the UK banking sector has improved it says markets also now have certainty over the timing and direction of regulatory change, with the Basel III regulatory reforms not being introduced until 2013 at the earliest and including extended transition periods.

This increase in the rate of the levy will mean that it raises £2.5bn in 2011, the same as the target revenue for future years. Previously the 2011 yield was forecast to be £1.7bn.

As a result of this increase in the rate of the levy, the forecast revenue raised from the levy has been revised for 2011.