Bank tax increased by extra £800m

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George Osborne has increased the levy on banks by an extra £800 million

Britain’s bank tax has been increased by an extra £800 million to raise £2.5 billion this year and will be made permanent to ensure banks make a “fair contribution”, the Chancellor has said.

George Osborne announced he was scrapping a lower introductory rate originally planned for 2011 as the banking sector is returning to health faster than expected.

He said he wanted to make sure “banks make a fair contribution to closing the deficit”.

Mr Osborne denied the move was politically motivated, but it comes as so-called Project Merlin talks with banks to rein in bonuses and increase business lending reach a crunch point.

Speaking on the BBC Radio 4 Today programme, Mr Osborne admitted he had not yet reached agreement on limiting bankers’ bonuses and said he hoped making the tax position plain would aid the prospects of a deal.

He said: “What really matters is if we get a measurable and significant increase in lending to small and medium-sized businesses. That’s what people will want to look at when we conclude a deal, if we conclude a deal. It’s very important to get all the components in place. Today’s announcement clears the way so now banks know where they are on taxation.”

He added: “I’m still confident we can secure a deal with the banks on seeing an increase in lending to small businesses and see that bonuses are lower this year than last year,” he said.

Shadow chancellor Ed Balls said: “After all George Osborne’s tough talk on the banks in recent weeks and months, this morning’s hurried and panicky announcement is a damp squib.”

The Treasury had planned to phase the levy in, with banks paying a lower introductory rate on their balance sheets since the start of the year.

But the tax – introduced on January 1 – will be increased in March and April to offset this before settling at 0.075% a month. It will raise the full £2.5 billion target in 2011 and 2012 before rising to £2.6 billion for the following years.

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