What was announced?

The Chancellor George Osborne announced today that the banking levy rate for the first year is being increased. This will mean that the bank levy raises £2.5bn in 2011 - an increase of £800m. The levy will raise £10bn over the course of the Parliament

What has changed since the last announcement in 2010?

Initially, a decision to introduce a lower rate in 2011 was taken in recognition of the uncertain market conditions prevailing at the time. The Government no longer considers this necessary. For example, the Bank of England recently noted that the near-term outlook and resilience of the UK banking sector has improved.

Why do we have a banking levy and not a bonus tax?

This will be a permanent levy on the bank's balance sheets, rather than a banking bonus tax which was always going to be a one-off. The banks should pay a fair contribution to the recovery, reflecting the risks it poses to the financial system and wider economy. At the same time, it gives the markets the needed predictability and stability on this. And, as Gordon Brown said, a banking bonus tax is easily circumvented after it's been used once.

What about the talks with the banks on lending and bonuses?

The talks are still very much ongoing and we are confident we can secure a deal with the banks on seeing an increase in lending to small businesses and see that bonuses are more reasonable. Today's announcement clears the way to some degree, now the banks know where they stand with taxation.