THE UK's biggest banks have warned the introduction of a new tax on their operations will reinforce fears that Britain is becoming a less attractive place to do business.

The British Bankers' Association (BBA) highlighted its concern after George Osborne scrapped the bank levy and replaced it with a new surcharge from January.

The levy, an annual charge on certain equity and liabilities over £20 billion, will be phased out over the next six years and no longer applied to worldwide assets, the Chancellor announced in the Summer Budget.

Osborne said the rate will be decreased from 0.21 per cent to 0.18 per cent from January 1, and continue to fall each calendar year until 2021.

It will be replaced from January by a new eight per cent surcharge on bank profits, which Osborne claimed will raise more money from the sector during the current parliament while "making the UK a more competitive place to do business."

BBA chief executive Anthony Browne said: "We welcome the Chancellor's decision to amend the bank levy to reduce the damage it does to Britain's export industry.

"But introducing yet another new bank-specific tax will reinforce fears that Britain is becoming a less attractive place for banks to do business.

"This is the fifth new bank-specific tax measure in as many years following fast on the heels of the big rise in March and will increase banks' tax burden by nearly £2bn.

"We believe these moves will also undermine competition in the industry by making it harder for smaller players to break through and challenge larger banks."

The levy was introduced in 2011 to curb risky behaviour by banks and ensure the sector made a "full and fair contribution" that reflected the risks its operations pose to the economy.

However it has been deeply unpopular with the industry, partly because it is tax on global assets, not just those held in the UK. It is understood to have been a major consideration for HSBC as it continues to mull whether to take its headquarters overseas.

The BBA noted that the levy had been increased in March for the ninth time, taking it to more than five times its original level. It claimed the combination of the new surcharge with the changes to the levy will result in banks paying an additional £1.7bn in tax over the next six years.

Accountancy giant EY responded positively to the changes. Lynne Sneddon, financial services tax partner, said the announcement signals an "acknowledgement from the government that the UK does need to remain a competitive location for global financial services companies."

Ms Sneddon said: "The introduction of an eight per cent surcharge sounds high, but is likely to be more acceptable than the levy because it at least has a direct link to the profitability of an institution. In addition, the fact that overall corporation tax is going to go down also helps ease the pain for banks of the surcharge."

But Guy Ellison, head of UK equities at Investec, warned: "The effect of a reduction in the bank levy over six years should be monitored closely; whatever is left of the levy will only be focused on UK balance sheets, but the reduction and narrower focus will be offset by an eight per cent incremental taxation on bank profits from January 2016.

"This could potentially hit domestically-focused and "challenger" banks hardest."