The bank levy was introduced in 2011. It is an annual charge on certain liabilities and equity of banks and building societies. All banks and building societies operating in the UK are liable to the levy, with some global groups also liable if they own UK-based subsidiaries or branches. There are two main rates – one for short-term chargeable liabilities with maturities of a year or less and one for long-term chargeable liabilities and equity. The short-term rate for 2018 is 0.16 per cent and the long-term rate is 0.08 per cent. The first £20 billion of each institution’s chargeable liabilities does not attract a bank levy charge. The bank levy rate is in the process of being cut progressively. The short-term rate will reach 0.10 per cent in January 2021. These cuts were announced in Summer Budget 2015, alongside the introduction of an 8 per cent corporation tax surcharge for banks.

In our latest forecast, we expect the bank levy to raise £2.3 billion in 2018-19. That would represent 0.3 per cent of all receipts, and is equivalent to £80 per household and 0.1 per cent of national income.

  • Latest forecast

    Our latest fiscal forecast was published in March 2018. Bank levy receipts are set to fall by 62.5 per cent in cash terms between 2017-18 and 2022-23, taking them down from 0.12 to 0.04 per cent of GDP. This reflects further reductions in the bank levy rates, which are set to fall from 0.16 and 0.08 to 0.10 and 0.05 per cent for short- and long-term chargeable liabilities respectively over the forecast period, a narrowing in the scope to exclude non-UK liabilities from UK banks’ returns from 2021, and our assumption that the tax base will continue to shrink.

    Expand to read the extract from our March 2018 EFO

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  • Latest monthly data

    Bank levy receipts are collected on a quarterly basis (alongside corporation tax instalment payments) between 7 and 16 months after the start of the accounting period. The ONS then time shifts these receipts backwards to align them more closely in time with the banks’ balance sheets at the time the bank levy liabilities were created. This generates a fairly smooth monthly profile for receipts over the year.

    Our March 2018 forecast is for total receipts by the end of 2017-18 to be £0.6 billion (19.0 per cent) lower than in the previous year. Over the first eleven months of 2017-18, bank levy receipts are down 17.8 per cent on the same period a year ago.

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  • Forecast methodology

    Forecast process

    The OBR commissions forecasts of bank levy receipts from HM Revenue & Customs (HMRC) for each fiscal event. The forecasts start by generating an in-year estimate for receipts in the current year, then uses a model to forecast growth in receipts from that starting point. We provide HMRC with assumptions for how the tax base will change in future that are used to generate the tax forecasts. These are scrutinised in a challenge process by the Budget Responsibility Committee (BRC) and OBR staff. This process allows the BRC to refine the assumptions and judgements that underpin the forecasts before they are published in our Economic and fiscal outlooks.

    Forecasting models

    Bank levy receipts are estimated by multiplying the value of chargeable bank and building society liabilities by the corresponding tax rate.

    Outturn data on the chargeable liabilities of banks and building societies are only available with a long lag. For each institution, HMRC therefore estimate chargeable liabilities for the calendar year accounting period that payments are currently being made for using cash receipts received during the current financial year. Most banks and building societies liable to the levy follow calendar year accounting periods and pay HMRC on a quarterly basis between 7 and 16 months after the liability was incurred.

    For forecast years, we assume that this estimated value of chargeable liabilities follows a downward trend, based on our judgement of how the balance sheets of larger UK banks are likely to evolve. From 2021 onwards, we also account for the planned reduction in scope of the tax base, which will only cover UK-based liabilities from then on.

    Both the short- and long-term levy rates are set to fall over the forecast period until 2021, after which current policy is that they will remain at 0.10 and 0.05 per cent respectively.

    Main forecast determinants

    We do not link our forecast of the bank levy tax base to any specific determinants from our economy forecast. Our March 2018 judgement about the size of the tax base was informed by recent historical trends and an assumption that the pace of deleveraging in respect of leviable liabilities is likely to slow over the forecast period.

    Main forecast judgements

    The most important judgements in our bank levy forecast are:

    • In-year estimate – our estimate for bank levy receipts in the current year is determined by year-to-date performance of receipts and indications from HMRC’s internal receipts monitoring. The in-year estimate determines the base year from which we use our model to forecast receipts growth.
    • The trend in chargeable liabilitiesthe chargeable liabilities of banks and building societies have fallen in recent years, based on the latest outturn data. This reflects trends in both the overall size of balance sheets and their composition. Since detailed data on the size and composition of banks’ and building societies’ balance sheets are only available with a long lag, we must judge whether this recent trend will persist across the forecast.

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  • Previous forecasts

    In the period prior to the Summer Budget 2015 cuts to future bank levy rates, receipts regularly came in lower than expected. The tax base was initially over-estimated and then fell away more quickly than expected. The Government repeatedly raised the levy rates to offset the loss of receipts from a smaller-than-expected tax base. Abstracting from the subsequent cuts in the bank levy, the tax base in recent years has continued to shrink by more than assumed.

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  • Policy measures

    Since our first forecast in June 2010, the Coalition and Conservative Governments have announced 9 policy measures affecting our forecast for bank levy. The original costings for these measures are contained in our policy measures database and were described briefly in the Treasury’s relevant Policy costings document. For measures announced since December 2014, the uncertainty ranking that we assigned to each is set out in a separate database. For those deemed ‘high’ or ‘very high’ uncertainty, the rationale for that ranking was set out in Annex A of the relevant Economic and fiscal outlook.

    These policy costings are:

    • In Summer Budget 2010, the bank levy was announced, to be introduced in January 2011. After a consultation, the rates were set at 0.05 per cent for short-term chargeable liabilities and 0.025 per cent for long-term chargeable liabilities and equity. The rates were increased in March 2011 to 0.10 and 0.05 per cent respectively, and then again in May 2011 to 0.075 and 0.0375 per cent respectively.
    • In Budget 2011, the short- and long-term rates were proposed to rise to 0.078 and 0.039 per cent, effective from January 2012. This was revised in Autumn Statement 2011, where it was announced the rates would instead rise to 0.088 and 0.044 per cent respectively.
    • In Budget 2012, the short- and long-term rates were proposed to increase to 0.105 and 0.0525 per cent from January 2013. This was revised in Autumn Statement 2012, where it was announced the rates would instead increase to 0.130 and 0.065 per cent respectively.
    • In Budget 2013, the short- and long-term rates were proposed to be increased to 0.142 and 0.071 per cent, effective from January 2014. This was revised in Autumn Statement 2013, when it was announced the rates would instead increase to 0.156 and 0.078 per cent.
    • In Budget 2015, the short- and long-term rates were increased to 0.210 and 0.105 per cent, effective from April 2015.
    • In Summer Budget 2015, the short- and long-term rates were reduced to 0.18 and 0.09 per cent respectively, effective from January 2016. It was also announced the rates would then fall each year on the 1 January until 2021, after which the rates would be set at 0.10 and 0.05 per cent respectively. Alongside these cuts, the Government introduced an 8 per cent corporation tax surcharge for banks.
    • In Summer Budget 2015, the Government also announced a change in the scope of the bank levy, so that liabilities associated with the overseas activities of UK head-quartered banking groups would no longer be subject to the levy.

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  • Other information

    The recording of bank levy receipts in the official public finances statistics was affected by the ONS decision in early 2017 to record corporation tax (CT) receipts on a time-shifted accruals rather than a cash basis. This approach time-adjusts cash receipts so that they are recorded closer to the time when the economic activity that created the liabilities took place. This methodological change was described in Box 4.2 of our November 2016 EFO, and was adopted in our forecasts from March 2017 onwards.

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