Tax by tax, spend by spend

Bank levy

This Forecast in-depth page has been updated with information available at the time of the March 2024 Economic and fiscal outlook. We are aware of a technical issue with our tableau charts across the site. Access the data from our March 2024 forecast supporting spreadsheets directly.

The bank levy was introduced in 2011. It is an annual charge on certain balance sheet liabilities and equity of banks and building societies, such as any outstanding loans or interest payments owed. All banks and building societies operating in the UK are liable to pay 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. Progressive cuts to the bank levy rate from 2018 were announced at Summer Budget 2015, alongside the introduction of an 8 per cent corporation tax surcharge for banks. From 2021 onwards the short-term rate is 0.10 per cent and the long-term rate is 0.05 per cent. In addition, from January 2021 onwards the scope of the bank levy has changed, such that UK-based global banks are no longer taxed on their global equities and liabilities.

We estimate that the bank levy will raise £1.4 billion in 2024-25. That represents 0.1 per cent of all receipts and is equivalent to £50 per household and 0.05 per cent of national income.

  Forecast methodology

Forecast process

The OBR commissions forecasts of bank levy receipts from HM Revenue & Customs for each fiscal event. The forecasts start by generating an in-year estimate for receipts in the current year, then use 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 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 estimates 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.

Main forecast determinants

We do not link our forecast of the bank levy tax base to any specific determinants from our economy forecast. The forecast judgement about the size of the tax base is informed by recent historical trends.

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 liabilities – the chargeable liabilities of banks and building societies have fallen in recent years, based on the latest outturn data. This can reflect 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 take judgments on whether recent trends will continue 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 overestimated, 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 its introduction, a number of policy measures affecting our forecast for the bank levy have been announced. 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 Chapter 3 of the relevant Economic and fiscal outlook (Annex A prior to the March 2023 EFO).

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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