Banks share prices lifted this afternoon as George Obsorne confirmed the levy would be phased out over the next six years.
In a move widely seen as looking to sway HSBC, Standard Chartered et al from leaving the UK, Osborne's first all-Tory Budget confirmed that the levy would be cut gradually until 2022. Instead an eight per cent surcharge will be applied to banks' profits from January 2016.
Currently banks pay 0.21 per cent on banks' assets.
"Banks make a key contribution to our economy, but also need to make a fair contribution," Osborne said. "I will, over the next six years, gradually reduce the bank levy rate – and after that make sure it no longer applies to worldwide balance sheets."
Shares in several major UK-listed banks climbed on the news.
Barclays, whose share price was already soaring after the ousting of chief executive Antony Jenkins, was up 3.8 per cent, while HSBC's share price was up 1.5 per cent.
Royal Bank of Scotland's share price was up 1.1 per cent at pixel time.
Standard Chartered improved, but it was not enough to erode the declines already notched up today. It was down 0.5 per cent at pixel time. Lloyds Bank's share price fell.
The British Bankers Association had written jointly to the chancellor ahead of the Budget to ask him to cap the levy, which was first introduced in 2010.
The trade association gave the dropping of the levy a qualified welcome.
Chief executive Anthony Browne said: "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.
“We still believe that the government should conduct a strategic review of the way banks are taxed to ensure that the UK remains a competitive place for banks to do business.”