British banks could end up paying more tax after the chancellor increased the rate of an industry levy in an attempt to offset any potential benefit from a reduction in corporation tax.

The move to increase the bank levy – from a charge of 0.088 per cent on banks’ global balance sheets to 0.105 per cent from 2013 – could trigger a double hit for some institutions.

This is because lenders are typically paying little or zero corporation tax as they can offset this liability against the losses they incurred during the financial crisis.

Also, the levy is charged on assets held within and outside the UK, while corporation tax is only payable on UK profits.

Royal Bank of Scotland estimated that the levy increase would cost it an additional £100m in 2013, when it does not expect to be paying corporation tax. Other banks were still trying to work out the potential impact.

The Treasury retained its goal of raising £2.5bn a year from the levy.

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