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* Bank levy to increase to 0.142 percent by 2014
* Hike is to offset cuts in corporation tax
* Take from levy well down on initial target
* Banks' shrinkage means UK raised less than forecast
* Critics say levy constrains banks' ability to lend
By Matt Scuffham
LONDON, March 20 (Reuters) - Britain is increasing the rateof a tax on banks' balance sheets for the sixth time since itwas introduced in 2011, aiming to ensure lenders don't benefitfrom reductions in corporation tax.
In his annual budget statement, Finance Minister GeorgeOsborne said the hike would ensure banks make a faircontribution and "reflected the risks they pose to the financialsystem and the wider economy".
The finance ministry said the rate would increase to 0.142percent from Jan. 1, 2014. It had already announced in Decemberthat the rate for 2013 would rise to 0.13 percent on UK-basedlenders, whose ranks include Lloyds, Barclays,RBS and HSBC.
Britain has not made as much as it hoped from the levy,despite the rate rising by over 80 percent since 2011, becausebanks have been shedding assets in order to bolster theirfinances and meet tougher regulatory requirements.
When the levy was introduced in 2011, the government said itexpected to raise about 2.5 billion pounds a year by 2012-13.
However, according to forecasts from the UK's budgetwatchdog, it now anticipates raising just 1.6 billion this year.It made 1.8 billion in the 2011-12 fiscal year.
Critics say the levy is damaging London's standing as afinancial centre and discouraging banks from lending at a timewhen the government is desperately trying to make fundsavailable to small businesses and homebuyers.
"This is a major cost for banks operating in the UK and isnot a good advert for the City of London's competitiveness as aglobal financial centre, particularly at a time when this isalready under threat from other quarters," said Matthew Barling,banking tax partner at PricewaterhouseCoopers.
The Office for Budget Responsibility forecasts thegovernment will raise 2.7 billion from the levy in 2013-14 and2.9 billion a year thereafter.
"The government is kicking the golden goose again with thisspiteful and populist move against UK banks," said MichaelWistow, head of tax at law firm Berwin Leighton Paisner. "Banksneed to increase their capital to enable them to lend ... tokick-start the economy."
Britain is cutting the main rate of company or corporationtax to 20 percent from April 2015. The tax had already been dueto fall to 21 percent in 2014.
