Osborne raises bank levy to £2.5bn

The Government is to increase the bank levy, raising an extra £800m.

The government is to increase the bank levy to £2.5bn, raising an extra £800m.

Such a change would usually be set out in the Budget, which is only a month away.

However, Chancellor George Osborne announced that it was being brought forward so banks knew the context they were operating in before announcing their bonus payments in the next few weeks.

Osborne also said that he felt the banks were in better shape than he thought they were two months ago and were now strong enough to pay the extra £800m.

The coalition says the levy on bank balance sheets is a better way of making sure companies make a fair contribution to tackling the deficit than extending Labour's bank bonus tax.

The Financial Times reported that the coalition was confident banks would provide £1.3bn over three years to parts of the UK hardest hit by spending cuts, on top of the £1.5bn Business Growth Fund which the banks announced in the autumn.

Bank bosses argue that lending targets for what might be weaker businesses could breach rules that say any decision should be in the best interest of shareholders.

Speaking on the BBC Radio 4's Today programme, Mr Osborne said: "What really matters is if we get a measurable and significant increase in lending to small and medium-sized businesses.

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

Osborne has not yet struck a deal on limiting bankers' bonuses and increasing loans to businesses but said he hoped that making the tax position plain would aid the prospects of an agreement.

Next week banks will begin to announce the value of their bonuses.

Total bonus payouts are expected to top £6bn - almost eight times the additional tax being raised.

The chancellor said that he "understood" people's anger over bonuses:

"It would have been better if, when we were bailing the banks out, we had secured something from the banks in return. Unfortunately I was not chancellor at the time."