Osborne launches £800m tax grab on big banks

Mr Osborne revealed yesterday the new bank levy will demand a bigger contribution from lenders and be permanent, just a week before the UK’s big banks are expected to begin reporting combined profits of £24bn.

The tax rise confirmed yesterday came as part-nationalised Lloyds Banking Group revealed it was axing another 200 jobs, many in Copley, West Yorkshire. Lloyds, which is 41 per cent owned by the taxpayer, said it was cutting the insurance support roles in Copley as it continues integrating Halifax Bank of Scotland.

The cuts bring the bank’s total role reductions to 26,200. About 50 jobs will be axed from general insurance in Copley and Bournemouth, the rest going in Newport, South Wales, and Shannon, Ireland.

Bank chiefs were reported to be “livid” at the surprise levy announcement and the British Bankers Association (BBA) accused the Government of “changing the tax goalposts”.

But Labour Shadow Chancellor Ed Balls labelled the move a “damp squib” and a “fig leaf” to hide the Government’s failure to seal a deal on so-called Project Merlin, which aims to force banks to lend more.

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.”

With Barclays due to kick of the banks’ reporting season on Tuesday, the Government is under pressure to get a firm commitment from banks to lend more to businesses and householders, while taming bonuses.

The UK bailed out two of its biggest lenders, Royal Bank of Scotland and Lloyds, at the height of the financial crisis, injecting billions of pounds of taxpayer funds. But public anger at the banks remains high as the UK’s mortgage drought continues and credit conditions remain tight for small businesses.

Mr Osborne yesterday said there would be an announcement on the talks with the banks “in the next week” – ending months of wrangling between lenders and Ministers on Project Merlin.

The Chancellor said: “I’m still confident we can secure a deal with the banks on seeing an increase in lending to small businesses and see that bonuses are lower this year than last year.”

Mr Osborne said he was scrapping a lower introductory tax on banks’ profits, planned for 2011, because the sector is returning to health faster than expected. The Treasury had planned to phase in the levy, but the tax will be increased in March and April to offset this, before settling at 0.075 per cent a month.

The tax, introduced on January 1, will now raise the full £2.5bn target in 2011 and 2012 before rising to £2.6bn for the following years. That compares with an original plan to collect £1.7bn this year.

The BBA said: “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.”

HSBC, Barclays, Lloyds and RBS all declined to comment. Yorkshire Bank said it had yet to quantify the impact.

“We were involved in the original consultation process and take the view that it’s simply a cost of doing business in the UK,” said a spokesman.