CHANCELLOR George Osborne announced today that he was making the levy on bank profits permanent, raising an extra £800 million this year and £2.5 billion every year.
He said he wanted to make sure "banks make a fair contribution to closing the deficit".
But Mr Osborne, speaking on the BBC Radio 4 Today programme, conceded he had not yet struck a deal on limiting bankers’ bonuses - saying he hoped that making the tax position plain would aid the prospects of a deal.
Mr Osborne denied his move was politically motivated, saying: ``No, it's economics and the need to make sure the banks make a fair contribution to closing the budget deficit.
"The measure we have just announced means there’s an extra £800 million coming in to the Treasury this year.
"What I have announced is a permanent tax on banks, every year banks contributing £2.5 billion net."
He went on: "I’m still confident we can secure a deal with the banks on seeing an increase in lending to small businesses and see that bonuses are lower this year than last year."
The Chancellor said he was originally going to phase the levy in, but banks were in a healthier position than had been thought.
"We can move more quickly to the full rate and that’s exactly what I have just announced," he said.
The Chancellor went on: ``The banks themselves understand they need to make a fair contribution to the economic recovery.
"The rate (of the levy) was going up at the beginning of March and I also wanted on the table what we are going to do on tax" before continuing further talks with banks.
He went on: "What really matters is if we get a measurable and significant increase in lending to small and medium-sized businesses.
"That’s what people will want to look at when we conclude a deal, if we conclude a deal.
"It’s very important to get all the components in place. Today’s announcement clears the way so now banks know where they are on taxation."
Asked about people’s anger over bankers’ bonuses, Mr Osborne replied: "I totally understand that anger and I share some of their frustration.
"It would have been better if, when we were bailing the banks out, we had secured something from the banks in return. Unfortunately I was not Chancellor at the time."
The tax, which was introduced in January, was originally set to raise #1.7 billion this year, but will now hit the #2.5 billion target in 2011 and 2012, rising to #2.6 billion for the following years.
Banks have been paying a lower introductory rate on their balance sheets since the start of the year, but the tax will be increased in March and April to offset this before settling at 0.075% a month.
Today’s announcement comes ahead of what is expected to be another bumper annual results season for the sector, with UK banks expected to report a combined £24 billion for 2010.
The Treasury said it was clear the sector was on firmer ground, adding that fears over European regulatory changes had subsided.
It said: "The Bank of England recently noted that the near-term outlook and resilience of the UK banking sector has improved.
"Markets also now have certainty over the timing and direction of regulatory change, with the Basel III regulatory reforms not being introduced until 2013 at the earliest and including extended transition periods."
The bank levy will apply to the global balance sheets of UK banks and the British operations of foreign firms.
But lenders with a balance sheet of less than £20 billion will be exempt from the tax.
It was announced in last year’s Budget to repair some of the damage caused by banks in the financial crisis.
The levy has replaced the Labour Government’s one-off bonus tax introduced last year, which charged 50% on all windfalls above £25,000 - raising more than £2 billion.
Mr Osborne is hammering out a deal ahead of this year’s bank bonus round to try to rein in excessive windfalls and to secure a pledge for a reported £190 billion more in lending to small businesses to support the economy.
The so-called Project Merlin talks have been hit by delays as both sides struggle to reach agreement.