The Government has revealed details of a new bank levy on bank balance sheets which has been designed to stop UK banks from taking as many risks with their funding.

The levy, which will be permanent, is expected to generate around £2.5 billion of annual revenues by 2012-13.

The levy will be a tax on the total size of bank balance sheets, but certain items, including retail deposits covered by insurance and bank capital will be excluded.

The final rates will not be finalised until the end of the year, but will be less than 0.1%.

Financial Secretary to the Treasury, Mark Hoban MP said: “We have consulted on the design of the scheme so that it achieves two objectives: firstly, ensuring that banks make a fair contribution in respect of the potential risks they pose to the UK financial system and wider economy.

“Secondly, the final scheme design incentivises banks to make greater use of more stable financial sources, such as long term debt and equity, working with the grain of our wider reform programme."

Chancellor George Osborne said in his spending review he wanted "to extract the maximum sustainable tax revenues from financial services".

Osborne said: "We neither want to let banks off making their fair contribution, nor do we want to drive them abroad.

"Many hundreds of thousands of jobs across the whole United Kingdom depend on Britain being a competitive place for financial services."

The levy is not expected to affect smaller banks and building societies.