Threat to foreign banks

THE City of London faces a huge threat to its competitiveness following Budget changes to the tax rules for UK branches of foreign firms, the British Bankers' Association claimed. It said the Chancellor's measures will 'massively increase' the costs of overseas investment banks operating in the UK and could lead to job losses.

The measure will raise an estimated £350m in 200 3/4 and £650m the following tax year. The Inland Revenue claims the complex reforms - relating to taxation of bank capital - will bring the UK into line with international practice.

But critics said the measure could seriously damage London's status as a premier financial centre. While the tax hikes are unlikely to lead to an exodus of big banks such as Goldman Sachs, they could drive away smaller foreign operators.