Ahead of his first public confrontation with Shadow Chancellor Ed Balls, rather than in the March budget, George Osborne hastily unveiled a change to the banking levy today. The £2.5bn levy is set to raise an extra £800m, but is still very far off the £6bn levy that the IMF has been urging for.

Beyond whether Osborne has gone far enough in this increase or discussing whether his hurried plans were a crude attempt at a shield before his bout with Ed Balls (which it clearly was) there is a much bigger issue that has developed out of the situation. The reaction of the banks.

The heads of HSBC, Barclays, Royal Bank of Scotland and Lloyds have all responded by schedualing a meeting to decide whether they should continue Project Merlin – a plan to contribute a combined £190bn to David Cameron’s Big Scociety bank, work together more effectively and increase lending to the public. It seems that the moment a plan to penalise banks is suggestion, they question whether they will contribute to the society they helped damage and pull even further away from working with the government. Their inability to learn from their mistakes is quite evident and Mr Osborne is quite happy to pander to this.

Both Standard Chartered and Santander UK have already left the project, leaving George Osborne to deal with the credit crunche’s worst offenders. Yet he is unwilling to tackle the big bonouses that are set to be announced later this month, only making small concessions for the benefit of the public, such as today’s announcement.

Not too long ago George Osborne was calling for a £2000 cap on bonouses, gone are these days. It is clear that the banks have George Osborne well and truly under their thumbs – whilst he may have talked tough in the past, he will not be taking any real action against them any time soon.

~Wail