UK banks urge Osborne to cap bank levy

The UK's banks have, in a letter, asked chancellor George Osborne to cap the UK's bank levy just days ahead of the chancellor unveiling his emergency summer budget.

The letter is a significant shift in attitudes of lenders, who had until now been careful to not criticise anti-bank policies too heavily in the wake of the financial crisis, understanding the strength of public and political anger at the industry and its role in causing the recession.

The British Bankers Association's plea comes as the UK's manufacturers have also called for measures to raise productivity, even as the Institute of Directors said that the tax system needed to be simplified to encourage investment.

The bank levy was first introduced in 2010 by Osborne at a rate of 0.05 per cent on of each of the UK-based bank's balance sheets.

Since then the chancellor has increased the levy nine times to 0.21 per cent currently.

The levy was originally introduced to encourage lenders to shrink, though Osborne had since said that banks could make a bigger contribution to repair public finances.

''The time is overdue for a strategic review of the Government's policy for taxing banks, to ensure that the tax regime for banking remains competitive. We would like the government to consider reform of the bank levy,'' the BBA's chief executive Anthony Browne said in his letter to the Chancellor.

In March, Osborne raised the levy to 0.21 per cent of a bank's assets from 0.16 per cent previously, lifting the amount the government aimed to raise from the tax to £3.4 billion a year from £2.5 billion.

Browne said in the letter to Osborne on 23 June that the government needed to consider ways of reforming the tax.

"Proposals to consider could include the levy to be capped in terms of its rate and a sunset clause introduced so that banks can begin to plan for a future without the levy," he said.

The chancellor will outline his economic plans in an emergency budget on Wednesday following May's general election.

HSBC, the largest lender in Europe, had said the levy would be a factor in whether it decided to keep its headquarters in the UK. It planned to make a decision this year.

"The levy is already causing damage," Browne said in his letter to Osborne.

"For example, activities are being booked outside London and marginal investment decisions are seeing activity placed outside the UK."