It is a pleasure to serve under your chairmanship, Mr Sharma.

Clauses 60 and 61 deliver on the Government’s commitment to replace the Bank of England’s cash ratio deposit scheme with a new Bank of England levy. Under the cash ratio deposit scheme, banks and building societies with over £600 million in eligible liabilities must place a portion of their deposits with the Bank on a non-interest-bearing basis. The Bank then invests the deposits, and the income generated is used to fund the costs of the Bank’s monetary policy and financial stability functions.

However, the Bank of England’s policy remit and policy responsibilities have grown in recent years, and the cash ratio deposit scheme has not generated the income required to fully fund those functions. As a result, the shortfall has been funded by the Bank’s capital and reserves. Clause 60 replaces the scheme with a new Bank of England levy, repeals the provisions governing the cash ratio deposit scheme in the Bank of England Act 1998, and inserts new section 6A and new schedule 2ZA into the Act.

As with the cash ratio deposit scheme, the new levy will fund the Bank’s financial stability and monetary policy activities. The same eligible financial institutions participating in the cash ratio deposit scheme will pay the levy, with contributions proportionate to their size. Each year, the Bank will be required to publish information setting out the policy functions that it intends to fund through the levy, and the amount that it intends to levy.

The Bank will remain subject to National Audit Office value-for-money reviews to ensure that it remains cost-effective. The levy will deliver a more reliable and stable funding stream to the Bank, and banks and building societies will benefit from greater certainty about the size of their annual contributions towards those functions. Secondary legislation will be introduced in due course to set out further details of the operationalisation of the levy, including how institutions’ contributions will be determined. The Treasury will consult on the draft legislation and has committed to review it every five years.

Clause 61 simply makes a number of consequential amendments to the Bank of England Act 1998 that are required to reflect the new levy. The levy will provide greater certainty to the Bank, as well as to financial institutions. I therefore recommend that clauses 60 and 61 stand part of the Bill.