The amount of corporation tax paid by the financial services industry will be cut following added pressure on public finances.

The tax reduction has been prompted by the losses suffered by Britain’s largest banks since the start of the global credit crunch.

Figures compiled by the Financial Times show that the £10 billion of writedowns unveiled in recent weeks by Royal Bank of Scotland, HBOS and Lloyds TSB will knock more than £2.5 billion off the three banks’ combined tax bills.

The figure which represents more than 5% Treasury’s forecast for corporation tax receipts in the 2007-08 fiscal year also emphasises how public finance is heavily dependant on the banking industry which has continued to account for a growing tax base in recent years.

British tax payers are expected to foot a majority of the bills despite the fact that some of the losses will be booked outside the UK.

The impact of the market turmoil on UK banks will be revealed this week when HSBC and Barclays, the country’s largest and third largest bank respectively, will announce their first quarter results.

According to market analysts, Barclays is expected to announce writedowns of £1.4 billion before tax.