A ONE THIRD increase in a tax on banks will deter financial institutions from coming to Britain, the lenders' trade association has warned.

The British Bankers' Association spoke out about bank levy after Chancellor George Osborne announced a raft of bank measures to raise £5.3 billion by 2020.

"The banks got support going into the crisis, now they must support the whole country as we recover from the crisis. I believe they can make a bigger contribution to the repair of our public finances," he said.

The levy - annual tax on the value of much of the debts of the UK banks - will be raised from the 0.156 per cent it was set at for 2014 to 0.21 per cent which Osborne said would raise an extra £900 million.

Foreign banks contribute to what lenders describe as "a location levy" but pay only a percentage of their UK liabilities.

Osborne also said that banks would no longer be able to offset the cost of compensating customers for issues such as mis-selling payment protection insurance from their corporation tax bills.

But BBA chief executive Anthony Browne has warned: "Banks in the UK already pay more than £40 billion in taxes each year, helping to fund schools and hospitals across the country.

"The bank levy imposes a significant cost on banking businesses in the UK, which is making many banks move work and jobs to other parts of the world, and is deterring international banks from investing in the UK.

"This major increase in the bank levy is likely to accelerate that process and damage the competitiveness of the UK economy.

"This will also further disadvantage UK headquartered banks by increasing tax on their overseas activities, while their competitors in those markets do not pay this tax at all."

The tax on banks' balance sheets, introduced in June 2010, has been increased eight times and is designed to raise at least £2.7 billion in 2014 to 2015 and £2.9 billion each year thereafter. It will raise an additional £4.4 billion over the next five years, the government estimates.

Stopping banks offsetting PPI and other customer redress costs is forecast to raise an extra £965 million by the end of the 2019 to 2020 fiscal year.

The Chancellor also said that he would raise a further £22 billion through the sale of more shares in Lloyds Banking Group and home loans held by the nationalised former building societies Northern Rock and Bradford & Bingley.

The taxpayer stake in Lloyds has already been slashed from 40% to just below 23%.

Osborne said he expects to raise a further £9 billion from the shares owned by the Treasury.

Britain spent £20.5 billion rescuing Lloyds during the crisis of 2007-9, leaving it with a 41 percent shareholding. Another £45 billion was spent bailing out Royal Bank of Scotland.

Osborne made no mention of selling any of the Treasury's outstanding 80% stake in Royal Bank of Scotland.

The government has so far raised £8.5 billion selling Lloyds shares, cutting its stake to under 23 per cent. It said any further sales will be subject to market conditions and getting value for taxpayers.

Shares in Lloyds are currently trading at around 79.15p, comfortably above the government's 73.6p buy-in price.

The planned sales would take the government's stake in Lloyds to about seven per cent, based on current share prices.

Osborne did not say how the latest sales will be structured.

UK Financial Investments (UKFI), which manages the government's stakes in bailed-out banks, raised £7.4 billion through two sales to financial institutions in September 2013 and March 2014.

It has adopted a different approach since, appointing investment bank Morgan Stanley to sell shares in the open market through a "pre-arranged trading plan".