UK government 
to raise bank levy

The government says it will increase the levy on banks to £2.5bn ($US4bn) this year – raising an extra £800m.

Chancellor George Osborne said the tax was being brought forward before banks announced their bonus payments.

But leaders of the four biggest UK banks were “livid” at the move, said BBC business editor Robert Peston.

A deal with banks to increase business loans and limit bonus payments has not yet been finalised after talks on the wide-ranging Project Merlin stalled.

The scheme, if signed, would involve banks promising to make available £190bn of credit for businesses, supporting the government’s so-called Big Society Bank, providing finance for medium-size businesses in economically disadvantaged parts of the country, and showing restraint in bonus payments.

According to sources, the heads of HSBC, Barclays, Royal Bank of Scotland and Lloyds will have a conference call on Tuesday afternoon, to decide whether to press ahead with the scheme, our editor says.

“The question the bank bosses will discuss is whether it remains sensible to sign up to Project Merlin, if they can’t be certain that the government will resist the temptation to periodically bash them when the political heat is on,” he added.

The change in the banking levy would have usually been set out in next month’s Budget. Shadow chancellor Ed Balls said the announcement had been “panicky” and was “a damp squib”. He added that the chancellor’s “delay and prevarication” in agreeing a deal with the banks was “further undermining confidence in economic recovery”.

Mr Osborne had originally announced that the government’s new bank levy would be phased in, with a lower rate applicable in 2011.

The coalition says the levy on bank balance sheets is a better way of making sure companies make a fair contribution to tackling the deficit than extending Labour’s bank bonus tax. The one-off tax, introduced by Alistair Darling, raised £2.3bn – after taking account of the tax reducing income tax and corporation tax receipts.