The UK’s Chancellor of the Exchequer George Osborne has decided to slash levy banks pay on their balance sheets and replace it with an 8% surcharge on their profits, effective 1 January 2016.

Addressing the Parliament in his post-election budget, Osborne said that he intends to gradually reduce the levy rate from its current 0.21% to 0.1% in 2021.

The levy was deeply unpopular with banks such as HSBC and Standard Chartered. HSBC even said the levy will be a factor in whether it decides to keep its headquarters in Britain.

"By getting this balance right, it means we’ll actually raise more from the banks this parliament, but at the same time make our country a more competitive place to do business," Osborne told Parliament.

The levy, which was imposed in 2011 following the financial meltdown, covers the global balance sheet assets of British banks along with assets of the UK operations of foreign banks.

Osborne also announced that he would lower the UK’s corporate tax rate to 18% over the next five years, making it the lowest in the Group of 20 major economies.