June 2010 Budget: financial services implications | Practical Law

June 2010 Budget: financial services implications | Practical Law

On 22 June 2010, the Chancellor, George Osborne, delivered the government's "emergency" June 2010 Budget.

June 2010 Budget: financial services implications

Practical Law UK Legal Update 6-502-5790 (Approx. 4 pages)

June 2010 Budget: financial services implications

by PLC Financial Services
Published on 22 Jun 2010 • United Kingdom
On 22 June 2010, the Chancellor, George Osborne, delivered the government's "emergency" June 2010 Budget.
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On 22 June 2010, the Chancellor, George Osborne, delivered the government's "emergency" June 2010 Budget.
Of particular interest to PLC Financial Services subscribers is the government's announcement that it will introduce a bank levy with effect from 1 January 2011. Amongst other things, the government has also outlined its plans to carry out further work to tackle unacceptable bank bonuses, including exploring the costs and benefits of a financial activities tax on profits and remuneration.
On 22 June 2010, the Chancellor, George Osborne, delivered the government's "emergency" June 2010 Budget.
Of particular interest to PLC Financial Services subscribers is the government's announcement that it will introduce a bank levy with effect from 1 January 2011. Amongst other things, the government has also outlined its plans to carry out further work to tackle unacceptable bank bonuses, including exploring the costs and benefits of a financial activities tax on profits and remuneration. Further detail regarding these developments is set out below.
PLC Financial Services will publish a practice note outlining the financial services related initiatives announced in the June 2010 Budget shortly. The note will outline all financial services regulatory measures and will link to key primary source material and related PLC Financial Services content.
For an overview of the most significant business tax announcements made in the June 2010 Budget, see PLC Tax, Legal update, June 2010 Budget: key business tax announcements.

Bank levy

The government announced that it will introduce a bank levy based on banks' balance sheets from 1 January 2011. The levy is intended to encourage banks to adopt less risky funding profiles, and to rebalance the tax burden between banking and other sectors. The government believes that banks should make a fair contribution in respect of the potential risks they pose to the UK financial system and wider economy. The levy is therefore expressed as being reflective of economic risk rather than an insurance against failure or a fund for future resolution. Details of the levy are set out in a separate document published by HM Treasury entitled, Bank Levy.
The levy will affect all UK banking groups and building societies (including UK banks in non-banking groups) as well as non-UK banks and banking groups operating in the UK.
Key points to note about the levy are that it will:
  • Only apply where the aggregate liabilities amount to £20 billion or more.
  • Be based on total liabilities (both short and long term) excluding Tier 1 capital, insured retail deposits, repos secured on sovereign debt and policyholder liabilities of retail insurance businesses within banking groups. Derivative liabilities will only be taken into account where they are net derivative positions.
  • Be set at a rate of 0.07%, with a lower initial rate of 0.04% in 2011.
The government intends to publish final details of the levy, following a consultation on its design including technical details, later in 2010.
The UK, French and German governments have confirmed in a joint statement their commitment to introducing bank levies based on banks’ balance sheets ahead of the forthcoming Toronto G20 summit. Other G20 members have already indicated their opposition to the global imposition of such a levy (see Legal update, G20 finance ministers' communiqué following meeting in Busan).

Bank remuneration

The government has announced a number of measures in the June Budget 2010 to address "unacceptable bank bonuses":
  • Working with international partners, the government will explore the costs and benefits of a financial activities tax (FAT) on profits and remuneration. The International Monetary Fund is expected to deliver their final report on a FAT at the G20's Toronto summit in June 2010, following an interim report in April 2010 (see Legal update, IMF interim report on additional financial sector taxes).
  • The government intends to consult on a remuneration disclosure scheme. Although not made clear in the June 2010 Budget, it would appear that this is the consultation promised by the previous government on executives' remuneration disclosure in March 2010 (see Legal update, HM Treasury publishes draft regulations on executives' remuneration disclosure).
  • It has requested the FSA, as part of its anticipated review of its Remuneration Code, to:
    • consider whether to impose more stringent requirements on the deferral and award of variable pay;
    • examine mechanisms for strengthening the link between performance and remuneration to ensure that incentives are aligned with the long-term performance of the firm; and
    • consider how to vary capital requirements to offset risk in remuneration practices.
    For more information on ongoing initiatives relating to remuneration policies and arrangements in the UK financial services sector, see Remuneration: key developments tracker.
As part of the government's proposals relating to remuneration, HM Treasury published the terms of reference for the Independent Commission on Banking in June 2010 (see Legal update, Treasury launches independent commission on banking).

Bank lending to SMEs

Amongst the measures announced in the June 2010 Budget to address the availability of finance to this sector are a new set of principles that must be followed by high street banks when lending to SMEs. For more information, see Legal update, BBA announces binding commitments to support SMEs.

Asset management

The government announced that it will hold discussions with industry and formal consultations on a range of issues relating to the asset management sector including in relation to the implementation of the new UCITS Directive (2009/65/EC) (UCITS IV) (for more information on developments relating to UCITS IV, see Practice note, Hot topics: The UCITS IV Directive.