UK lenders to pay annual levy that will raise £200m for BOE running costs

Published Wed, Jun 8, 2022 · 11:30 PM
    • LARGE UK lenders are to pay an annual levy to the Bank of England (BOE) under a new funding model to ensure it no longer needs to draw down reserves to cover running costs.
    • LARGE UK lenders are to pay an annual levy to the Bank of England (BOE) under a new funding model to ensure it no longer needs to draw down reserves to cover running costs. PHOTO: EPA-EFE

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    LARGE UK lenders are to pay an annual levy to the Bank of England (BOE) under a new funding model to ensure it no longer needs to draw down reserves to cover running costs.

    All UK banks and building societies with more than £600 million (S$1035.3 million) in assets will have to contribute, with the levy expected to raise more than £200 million a year for the BOE to pay for its monetary policy analysis, research, markets and financial stability functions.

    The scheme agreed with the Treasury will replace a complex funding model which failed to cover the BOE's costs last year. The shortfall "has been funded from the Bank's capital and reserves," the Treasury said in a statement. The BOE was unable to pay a dividend to the Treasury last year for the first time in living memory.

    The new levy, which will cost banks slightly more than the current scheme, will come on top of an existing £300 million annual charge to cover the cost of the BOE's Prudential Regulation Authority.

    Switching to an annual levy from the existing system of 5 year settlements could leave the BOE more exposed to political interference, former UK officials have warned.

    Charlie Bean, a former BOE deputy governor, has said that an annual arrangement provides "more scope for the government or the chancellor to put pressure on the Bank to take politically favourable actions in return for a better financial settlement."

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    The Treasury said: "The Bank's policy costs to be recovered through the levy will be approved by the Bank's Court of Directors as part of the annual budget setting processes. The levy, in line with current arrangements, will also be discussed as part of the established arrangements for regular discussions between the Bank and Treasury covering the Bank's financial position." BLOOMBERG

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