Systemic risk levy
The measure
The Government considers that an internationally coordinated systemic risk tax
on financial institutions could help to reduce the risks and impact of future
financial crises.
The Government has set out in the Budget the key principles it believes should
guide further international work on systemic risk taxes. These are:
- a systemic risk tax should be coordinated internationally;
- it should complement but not substitute for existing G20 initiatives aimed at addressing systemic risk;
- the tax proceeds should go into general taxation of the national governments and should not be seen as an insurance policy for financial institutions;
- the timing of its introduction should take account of the timing and strength of the economic recovery;
- it should be as simple as possible to aid international co-ordination; and
- it should cover all financial institutions that might contribute significantly to systemic risk.
Who will be affected?
Financial institutions, in particular banking groups, operating in the UK.
When?
No timescale has been set. Given the current Government's desire to introduce a new tax in an internationally coordinated manner, any proposal is likely to take several months to conclude.
A number of G20 governments have suggested windfall or other new taxes on the
banking sector in order to recover the costs of 'banking bailouts' and to raise
tax revenues. President Obama has already announced a proposal to levy a 15
basis point levy on some of the borrowing costs of large banking groups (with
over $50bn of assets). Other commentators have suggested a Tobin style tax,
which would be a tax on each financial transaction.
The Government's desire for an internationally coordinated response appears
sensible given the risk that the UK could lose business, employment and tax
revenues by taking a unilateral approach..
