George Osborne announces £800 million extra tax on banks

Tim Montgomerie

The Chancellor of the Exchequer has just been on the Today programme and has announced that the bank levy will be raised from £1.7 billion to £2.5 billion with immediate effect.

Mr Osborne's surprise announcement comes on the day he faces Ed Balls, for the first time, across the despatch box in the House of Commons.

George Osborne told Today that his negotiations with banks on their lending to small businesses and on bonus payments are ongoing and he wanted this extra tax on the table as those negotiations continued. The FT (£) reports this morning that banks are set to agree increased lending to UK businesses from £175 billion to £195 billion. This will include £1 billion extra to small businesses in the regions.

On Mr Osborne's bank levy increase, a Treasury press release states:

"The Government initially announced that a reduced rate of 0.05 per cent would apply in 2011, recognising the uncertain market conditions prevailing at the time.  The Government no longer considers this necessary.  Therefore, from 1 March the rate of the levy will be 0.1 per cent for 2 months, to offset the lower rate of 0.05 per cent charged in January and February, before moving to 0.075 per cent."

I wonder what Mr Osborne will do with the extra revenue? £150 million extra deficit repayment? £150 million extra to help Big Society charities? £500 million to help motorists at the pump?

11.45am: Graeme Leach, Chief Economist at the Institute of Directors, has warned against the levy becoming a regular raid on the banks:

“When the levy was first introduced we cautioned that there was a real risk that it would ramp up over time, and risk undermining the competitiveness of the City. Today’s announcement of a further increase of £800m in the levy confirms our initial concern; let’s hope it’s the last increase.”

12.45pm: Watch George Osborne explain his tax move.