George Osborne watered down his flagship bank levy under pressure from giant financial companies, some of which admit to paying no UK corporation tax, it was revealed.
Documents obtained by the Standard show the world’s biggest banks pushed the Treasury to weaken Osborne’s plan to claw money back from the financial sector after the 2008 crash.
It has since emerged that several banks involved in successfully lobbying for a less burdensome levy paid no corporation tax in 2014.
The revelation that Osborne altered his levy in line with what the banks wanted led shadow chancellor John McDonnell to claim he “dances to the tune of whatever the bankers call for”.
McDonnell said: “Customers and taxpayers who bailed out the banks and continue to pay the price for their past actions and excesses will see this as yet more proof that Osborne is on the side of those who run the banks.”
Osborne introduced the levy after the government spent billions of pounds bailing out banks.
However, documents obtained under a Freedom of Information Act request by the Standard show that big finance groups pushed for the levy to be weakened when it was formulated in 2010.
Among those who replied to the government’s consultation and called for changes were the CBI, Standard Chartered, Santander, HSBC and RBS. The British Banking Association said the levy would hit banks with huge costs, have a “detrimental effect” on the industry and “deter” investment.
It also raised concerns that banks would be charged on liabilities outside the UK and called for ministers to set out when the levy would end.
The bank levy rose after 2010, but last July, Osborne announced changes in line with what the banks wanted, including that it would be tapered and by 2021 only hit UK balance sheets.
He did raise corporation tax for banks to eight percentage points above the standard rate but a Reuters investigation last week revealed that in 2014 some of the largest banking groups — all represented by the BBA — paid no UK corporation tax, including Credit Suisse, JP Morgan Chase, Deutsche Bank, Bank of America Merrill Lynch, Morgan Stanley, Nomura and Citigroup. The banks declined to comment at the time although their filings noted that they followed all tax rules and that tax payments can be volatile.
Citigroup and Nomura wrote letters to the 2010 consultation, calling for the proposed policy to be weakened. Both declined to comment.
A BBA spokesman said the sector had contributed an estimated £31.3bn across all taxes to UK coffers in 2014. He said: “Banks should pay their fair share to finance public services. But it is also crucial that the tax system provides long-term certainty so that banks can create jobs, invest and spread prosperity across the UK.”
A Treasury spokeswoman said reforms made to the levy and corporation tax would create a “fair” regime and rake in a further £2bn. She said: “Any suggestion of undue influence is wrong.”
The Financial Conduct Authority recently shelved a bank misselling probe. It decided against action against HSBC over claims its private banking arm helped rich clients avoid tax and ditched plans for an investigation into pay and behaviour in the industry.

Banks see big rise in demand for personal loans
British banks saw a notable rise in demand for personal loans and other unsecured credit in late 2015 which was expected to remain strong in early 2016, the Bank of England said. The BoE’s Credit Conditions Survey said banks were providing more unsecured lending to households as their appetite for risk grew. Bank of England Governor Mark Carney said this week that Britain’s economic recovery was not reliant on growing debt levels among households. “The increase in unsecured credit availability appeared particularly apparent in other unsecured lending, such as personal loans, where credit scoring criteria were reported to have loosened,” the BoE said. It also said banks had reported a slight increase in demand for mortgages in the fourth quarter of last year and it was likely to rise in the first quarter of this year.