BANK chiefs were furious last night after Chancellor George Osborne mounted an unexpected £800 million raid on their institutions' finances.

"We been caught with our trousers down," noted one irate banker.

Banks were due to pay £1.7 billion this year under the Coalition's new levy and £2.5bn in subsequent years but the Treasury said that banks are returning to health faster than expected and so the full amount would be collected this year from March 1.

The British Bankers' Association accused Mr Osborne of "changing the tax goalposts" and warned: "All organisations want a predictable tax regime so they can plan their businesses accordingly and constant chopping and changing risks making the UK a less attractive place for businesses to operate."

However, Liberal Democrat peer Lord Oakeshott called on the bankers to "grow up and get a life", accusing them of behaving like they ran the Government.

Angry bosses from HSBC, Barclays, Royal Bank of Scotland and Lloyds held a conference call yesterday afternoon to assess the situation but it is thought they decided to press on with Project Merlin, their private talks with the Treasury, given bankers' pariah status with the public and suggestions that the bonus pot this year will be an estimated £6bn.

In a separate attack before the two clashed in the Commons, Ed Balls, the Shadow Chancellor, dismissed the Chancellor's unexpected move as a "damp squib".

He said: "This panicky announcement seems to be a fig leaf to hide George Osborne's failure to get a deal on the Project Merlin talks with the banks."

Brendan Barber, the TUC general secretary, said the levy was still "pathetically small", amounting to little more than "small change" from the banks' bonus pools. "Rather than set alarm bells ringing in the City, this levy will be met with the sound of clinking champagne glasses," he said.

Grahame Smith, the STUC general secretary, dismissed the £800m grab as a "pitiful increase", that exposed Project Merlin to be "the sham we anticipated".

By contrast, the Institute of Directors said: "When the levy was introduced we cautioned that there was a real risk it would ramp up over time and risk undermining the competitiveness of the City. Today's announcement of a further increase of £800m in the levy confirms our initial concern; let's hope it's the last increase."

Mr Osborne said his announcement should pave the way for a deal to curb bonus payouts while increasing lending to cash-starved small and medium-sized firms. "It's very important to get all the components in place. This announcement clears the way so now banks know where they are on taxation," he said.

"I'm confident we can secure a deal with the banks on seeing an increase in lending to small businesses and see that bonuses are lower this year than last year."

The Treasury said it understood bankers' shock at the £800m grab. "It is not surprising they would have been surprised," said one source.

However, he explained it was wise to announce it now before Project Merlin had been agreed rather than after, because if they had announced the £800m grab after a deal, then this would have been regarded as "bad faith".

During a feisty Commons question time the Chancellor said he expected to make an announcement "in the next week" on Project Merlin, following months of sparring between the Treasury and the banks.

It is thought the announcement could come as early as tomorrow. Banks could agree to increase lending from £175bn last year to £190bn this year, provide more than £1bn to help boost regional growth and disclose the pay of top decision-making executives.

Ministers are keen to have a deal before the bank reporting season and bonuses are announced. This begins on Tuesday with Barclays' results. Its chief executive, Bob Diamond, could be in line for a £9m bonus.

Business: Page 25.