Britain hikes banking levy to £2.5 BN

LONDON: Britain said Tuesday it will increase its banking levy by £800 million ($1.3 million, 940 million euros) to £2.5 billion this year, in a surprise move that has angered the banking sector.

 confirmed that the levy would be made permanent as talks between the government and banks reach a crunch point over limiting executive bonuses and increasing lending to small businesses.

The move, announced by the Treasury, came amid mounting public outrage in Britain at that banks as they prepare to unveil huge bonuses, which the government has appeared powerless to curb.

"The Chancellor has announced today an increase in the rate of the bank levy to be charged in 2011. This change will increase the revenue from the levy in 2011 by £800m to £2.5 billion," the Treasury said in a statement.

Chancellor of the Exchequer Osborne, speaking on BBC Radio, said he was scrapping a lower introductory rate originally planned for this year as the banking sector was returning to health faster than expected.

Banks should make a "fair contribution" as the Conservative-Liberal Democrat coalition fights to slash a record public deficit that was inherited from the previous Labour government, he added.

"It's (about) economics and the need to make sure that the banks make a fair contribution to closing the budget deficit," Osborne told BBC Radio.

"Because of the measure we've just announced ... there is an extra £800 million coming into the Treasury this year and I think that is a fair contribution from the banks to our economic recovery."

Osborne added that he hoped making the tax position clear would help the prospects of a breakthrough in talks with the banks.

"What really matters is if we get a measurable and significant increase in lending to small- and medium-sized businesses," he said.

"That's what people will want to look at when we conclude a deal, if we conclude a deal."

The Treasury meanwhile highlighted that the changes came after the Bank of England "noted that the near-term outlook and resilience of the UK banking sector has improved."

The move drew swift condemnation from the British Bankers' Association, and industry body which criticised finance officials for "changing the tax goalposts" at the last-minute.

"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," the association warned.