Chancellor welcomes Euro bank levy plans

An EU Commission proposal called for a compulsory levy on all banks to create a multi-billion pound fund which would be used to "manage" financial collapses.

The money would be collected and administered by national governments, but would not be used directly for bailing out or rescuing struggling banks.

Instead, said Internal Market Commissioner Michel Barnier, the reserve would be used "only to ensure that a bank's failure is managed in an orderly way and does not destabilise the financial system".

But Mr Osborne, speaking after talks with US Treasury Secretary Timothy Geithner at 11 Downing Street, made it clear that the Government wants the right to use the pot of money on any domestic policies it chooses.

He said: "The Conservative Party made an argument in the recent General Election that the UK should have a bank levy.

"We are glad to see elsewhere in Europe others agree and we are clear that the purpose of that bank levy is to raise money that can help – it will be used for general expenditure purposes."

The Chancellor added: "We will be setting the design of that levy going forward but I think the IMF (International Monetary Fund) has created a good framework for how a bank levy might look."

The UK believes ring-fencing the proceeds would create a "moral hazard" – with banks more likely to take risks if they know there is a rescue fund.