Osborne lifts banking levy to £2.5 billion

8 February 2011

Chancellor George Osborne has increased the government levy on bank profits this year by £800 million to £2.5 billion.

When it was originally announced in June, the levy was expected to raise £1.7 billion this year and then be phased in to deliver £2.5 billion next year, rising to £2.6 billion by 2013.

But in a surprise announcement on Tuesday morning, the Treasury said it had increased the levy to raise the full amount in the first year, adding it wanted banks to make "a fair contribution" to the potential risks they pose to the financial system and to encourage them to move to less risky funding.

The chancellor also said the move would give some clarity ahead of the bank bonus announcement season.

Speaking on BBC Radio 4's Today programme, Osborne said the move would help show lenders that he was acting in "good faith" in negotiations over increased loans to small businesses and curbs to bonuses payments.

"What I want the banks to agree to is a commitment to lending," he said, adding he did not want to first get an agreement with lenders and then "sting" them with a tax.

He hopes that making the tax position plain would aid a deal.


The announcement will almost certainly be debated in the House of Commons later today as Osborne is set to take on new shadow chancellor Ed Balls for the first time. Balls is likely to attack the chancellor on banker bonuses and call for higher taxes.

This comes as a deal between the banks and government over bonuses and business lending commitments, called Project Merlin, has stalled with the Treasury reportedly unhappy with the clarity of the data it is receiving.

The banks are expected to be forced to disclose the compensation packages of as many as 10 of their highest paid employees below board level under a new disclosure regime being agreed as part of the project.

This move would make Britain's banking sector the most transparent in the world, surpassing both New York and Hong Kong, where at present banks must give details of the pay packages of their top five most highly paid employees.

The banks, including Barclays, HSBC and Royal Bank of Scotland, are also expected to provide more than £1 billion of equity funding to smaller British companies to help growth businesses across the UK.

This article was written for Interactive Investor

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