Chancellor Announces Extra £800 Million in Bank Tax

The chancellor announced an extra £800 million in tax on banks on Tuesday, drawing ire from the industry.

The surprise announcement comes a month ahead of the budget. Chancellor George Osborne said he hoped the move would speed up negotiations between the government and banks on Project Merlin, which centres on encouraging banks to lend more, and restrain the bonus culture.

Mr Osborne said: “What I am absolutely focused on is two things: One, the banks paying a fair share in tax and making sure that they are contributing to the economic recovery. Second, that they lend to businesses – that is an absolute priority because that is how we are going to get this economy moving.”

But according to the BBC, the announcement may backfire, with the angered bank bosses meeting on Tuesday to decide whether to back out of the talks on Project Merlin altogether.

Stirling dropped against the euro and the dollar after the chancellor announced that the bank levy was being raised from £1.7 billion to £2.5 billion per year.

The British Banker’s Association said in a statement on its website that the levy is nothing new: “The only difference is that the government is bringing it in now, rather than phasing in the full amount.

“However, the levy itself is complex and will hit our most global banks hardest as they operate and pay tax across national boundaries. Changing the tax goalposts also makes things harder – all organisations want a predictable tax regime so they can plan their businesses accordingly and constant chopping and changing risks making the UK a less attractive place for businesses to operate.”

Shadow Chancellor Ed Balls said the tax was a “damp squib” and covered up the government’s failure to tackle the banks properly over bonuses.

Public anger over banks’ bonuses has remained simmering since taxpayer’s money was used to prop up the financial system during the economic crisis, and to bail out Lloyds and RBS.

As banks’ profit margins have returned to a healthy surplus, small businesses have increasingly complained of a lack of credit.

On BBC Radio 4’s Today programme, Mr Osborne 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.”

The chancellor said he understand the public’s anger over banking bonuses.

“It would have been better if, when we were bailing the banks out, we had secured something from the banks in return. Unfortunately I was not chancellor at the time,” he said.