There was pre-Budget speculation that the Chancellor would introduce an extra 5% or even 8% tax charge on banks – instead John Healey opted for a lower instead.

This charge will be on top of the 25% corporate tax rate.

The Chancellor confirmed that the bank surcharge will run for just 15 months, starting from next January.

Healey said” I am looking to our banks to help fund breathing space for British families.

And so banks will pay an extra 3% on the bank surcharge. This will be time limited to pay for immediate support on energy bills starting in January, ending 15 months later.”

It was highlighted pre-Budget that banks could absorb the additional cost, but if charge was prolonged they could also respond by changing mortgage pricing, fees, incentives or lending appetite.

Commenting on the announcement,  John Connor, partner in the financial institutions practice at Womble Bond Dickinson said:

“I think the main issue will be the implications of the surcharge on the UK’s longer-term competitiveness. A small one-off surcharge is one thing. A sustained and significant increase in taxes would make the UK one of the most expensive places in the world for banks to do business.”

He added: “That might result in international banks directing a greater share of expansion and investment to other locations in the world. The Government may be betting on the regulatory cost of entry to move into new jurisdictions making this less likely to happen – for example new European regulations that come into force next year will make it more difficult and expensive for an international bank to provide services in Europe.”