U.K. Budget Proposal Adds New Levy on Banks, Raises Value-Added Tax

The United Kingdom, as with many other nations around the world, is facing a financial crisis. In laying out a new budget to tackle his country's fiscal mess, newly appointed Chancellor of the Exchequer George Osborne (pictured) has proposed a multibillion-pound bank levy, which will apply to the balance sheets of U.K. banks.

The move is expected to raise more £2 billion ($2.96 billion) a year once it is fully in place, beginning in 2011. Osborne's budget also increases the country's value-added tax, or VAT, to 20% from its current 17.5%, with the potential to raise £12 billion pounds a year, BBC News reported.

Members of the country's Labour Party, which was swept from power in May's elections, are expected to argue that an increase in the VAT would affect the nation's poorest citizens, including retirees, the unemployed and those who pay no income taxes.

The bank tax is an attempt by Osborne to have London's financial district contribute its fair share toward reducing the nation's deficit, London's Financial Times reported. The chancellor, the U.K. equivalent of the U.S. treasury secretary, has said he will impose an open-ended levy of at least £1 billion a year, even without securing a global agreement -- raising concerns locally that the tax will drive financial business away from Britain, the Financial Times said.

Bankers and industry groups are resigned to a new levy but warned that markedly higher taxes, particularly those without set end dates, could discourage overseas banks from expanding in London.

A unilateral U.K. bank levy could "adversely affect" the sector and "threaten the U.K.'s future as the world's leading international financial center," Mark Austen, acting chief executive of the Association for Financial Markets in Europe, told the Financial Times.