Britain lifts bank levy for sixth time in two years

By Matt Scuffham

LONDON (Reuters) - Britain is increasing the rate of a tax on banks' balance sheets for the sixth time since it was introduced in 2011, aiming to ensure lenders don't benefit from reductions in corporation tax.

In his annual budget statement, Chancellor George Osborne said the hike would ensure banks make a fair contribution and "reflected the risks they pose to the financial system and the wider economy".

The finance ministry said the rate would increase to 0.142 percent from January 1, 2014. It had already announced in December that the rate for 2013 would rise to 0.13 percent on UK-based lenders, whose ranks include Lloyds, Barclays, RBS and HSBC.

Britain has not made as much as it hoped from the levy, despite the rate rising by over 80 percent since 2011, because banks have been shedding assets in order to bolster their finances and meet tougher regulatory requirements.

When the levy was introduced in 2011, the government said it expected to raise about 2.5 billion pounds a year by 2012-13.

However, according to forecasts from the UK's budget watchdog, it now anticipates raising just 1.6 billion this year. It made 1.8 billion in the 2011-12 fiscal year.

Critics say the levy is damaging London's standing as a financial centre and discouraging banks from lending at a time when the government is desperately trying to make funds available to small businesses and homebuyers.

"This is a major cost for banks operating in the UK and is not a good advert for the City of London's competitiveness as a global financial centre, particularly at a time when this is already under threat from other quarters," said Matthew Barling, banking tax partner at PricewaterhouseCoopers.

The Office for Budget Responsibility forecasts the government will raise 2.7 billion from the levy in 2013-14 and 2.9 billion a year thereafter.

"The government is kicking the golden goose again with this spiteful and populist move against UK banks," said Michael Wistow, head of tax at law firm Berwin Leighton Paisner. "Banks need to increase their capital to enable them to lend ... to kick-start the economy."

Britain is cutting the main rate of company or corporation tax to 20 percent from April 2015. The tax had already been due to fall to 21 percent in 2014.

(Editing by David Holmes)