The UK government Tuesday introduced its permanent levy on banks’ balance sheets.

Banks will be charged 0.05% in 2011, and the rate will rise to 0.75% in 2012.

Once it is fully in place, the government expects the levy to raise around £2.5 billion in annual revenues.

The tax has two objectives. Firstly, it is intended to encourage banks to move to more stable sources of funding, such as long-term debt and equity. Secondly, the government says it represents a fair contribution by the banks towards the risks the banking system poses to the wider economy.

“The levy which comes into force today means that banks will now make a full and fair contribution in respect of the potential risks they pose to the wider economy. This measure will also encourage banks to reduce their dependence on the riskier, short term funding that was one of the main causes of the financial crisis,” said financial secretary to the Treasury, Mark Hoban.

He added that the £2.5 billion it raises per year will go towards helping reduce the country’s budget deficit.

IE