Banks are to be hit with an increased bank levy, while foreign-owned financial institutions will be stopped from off-setting the fee against corporation tax (CT).

Chancellor George Osborne announced in Budget 2013 that the levy is set to rise to 0.142% from January 2014 'to ensure that banks make a fair contribution' explaining that the action 'reflects the risks they pose to the financial system and the wider economy.'

Tightening the legislation associated with the levy, from January 2013, the government will remove the possibility of foreign-owned banks deducting the fee against UK CT and income tax.

Matthew Barling, PwC banking tax partner, said: 'The bank levy rate has now risen by over 80% since it was introduced in 2011. 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.'

Banks are also to continue being excluded from forth-coming CT reductions - including the fall to 20% announced in Budget 2013.

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

'Excluding banks from any corporation tax reduction through increasing the bank levy conflicts with the government's stated aim of encouraging banks to lend. We need to put an end to banker bashing via the tax code, which is often counter-productive.'

For the latest news and analysis on Budget 2013, click HERE