John Healey has told Bank of England governor Andrew Bailey to loosen banking regulation “as quickly as possible” after the government raised taxes on the sector in the Budget.

The Chancellor wrote to Bailey following the Budget with a direction for the Financial Policy Committee (FPC) to balance its stability mandate with support for economic growth.

“It is crucial that our regulatory framework is internationally competitive, promotes competition and acts to support, rather than unduly constrain, investment in the UK economy,” Healey wrote.

He called for the FPC to accelerate changes to bank capital rules and ditch overlapping regulations to pave the way for banks to increase lending. He also called for a relaxation on borrowing caps in a bid to boost home buying and mortgage lending.

“I look forward to the committee delivering these reforms as quickly as possible, and I expect the next stage of the review to deliver further proposals, in particular to address overlaps identified in capital requirements related to domestic exposures,” Healey said.

The Chancellor is required to write to the FPC every year to define the government’s economic policy and issue formal remit and recommendations. 

The letter also stresses the committee does not have the capacity to “exercise its functions in a way that would in its opinion be likely to have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy in the medium or long term.”

Healey’s bank tax gets backlash

It comes after Healey doubled the UK banking surcharge in Wednesday’s Budget to six per cent, which is expected to raise an additional £1.5bn from the sector. The tax hike will last 15 months and will set banks’ effective corporation tax rate at 31 per cent.

In November, the FPC will release its Financial Stability Report, which will serve as a primary catalyst for driving structural updates to UK banking regulations. 

Healey has faced immediate backlash to his tax increase on the some in the banking sector – but most other major lenders chose not to criticise the raid publicly.

JP Morgan said the move “singles out” the industry and “lacks principle”. Lloyds finance chief William Chalmers said following the bank’s third-quarter update that additional taxes were “unhelpful to achieving… UK growth or international competitiveness”.

The Office for Budget Responsibility (OBR) warned the tax hike will lose around £190m in receipts with some banks assumed to move profits out of the UK in response to the higher rate. The watchdog added the total consequence is “uncertain”.

The Budget directly earmarked the revenue for the tax hike to fund Healey’s plan to pay 20m households £100 to help with energy bills.

“My message [to banks] is, you’re such an important part of this country and its future, but I’m asking you to help with the costs that households need to help get through the winter,” Healey said on Thursday.

“I hope they see my letter to the Bank of England governor… as a sign of the sort of concern I’ve got now to make sure that we have a framework within which they can do that.”