Britain slapped an extra £800m sterling tax on banks this year, taking a harder line on the sector as it seeks to strike a deal to curb bonuses and free up business lending.
The UK's Finance Minister George Osborne said he hoped that making the tax position plain would aid a possible deal with banks on increasing the amount they lend to businesses and limiting bonuses - known as Project Merlin.
'I am 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,' he said.
Public anger towards bankers remains fierce, with many blaming them for causing the financial crisis. The UK government said today that it will impose the full amount of a planned levy on bank balance sheets this year, instead of phasing it in.
British banks like Barclays and HSBC and and the British operations of banks from other countries, such as Goldman Sachs and Deutsche Bank will pay a total of £2.5 billion in 2011.
The Treasury had initially planned to raise £1.7 billion from the levy this year and the full amount from 2012.
Britain announced plans last June for the permanent levy on bank balance sheets, replacing a one-off tax on bonuses that raised over £3 billion but failed in its central aim of curbing bankers' pay.
Analysts estimate the tax will cost HSBC £500-600m; Barclays, RBS and Lloyds about £400m each; and Standard Chartered about £150m. Osborne said the extra £800m would help Britain deal with its budget deficit.
The Treasury said it wants banks to make 'a fair contribution' to the potential risks they pose to the financial system and to encourage them to move to less risky funding.
The UK government was forced to use taxpayers' cash to bail out Royal Bank of Scotland and Lloyds and prop up the banking system during the financial crisis.
Meanwhile, Britain is likely to sell its stakes in part-nationalised Lloyds and RBS in several tranches, a senior Treasury civil servant said today. After weeks of talks, an agreement on lending could come this week, perhaps on Thursday, industry sources have said.
Banks are expected to agree to a gross business lending target of about £190 billion, subject to demand from credit worthy customers.
Britain wants other countries to introduce bank levies - the International Monetary Fund supports a global tax on liabilities - and has been discussing how to avoid double taxation with other countries. It has struck a deal with France, which has also introduced a levy.
Banks are concerned they could be taxed more than once on the same assets. Critics have also said the levy will make it less attractive for overseas banks to conduct Treasury operations out of London.
