Britain's banks say a special tax on bankers' bonuses which is being considered by the government would be "populist" and could damage the sector and the country's position as an industry hub.

"Windfall taxes are usually three things - they are populist, they are political and they are also penal," Angela Knight, chief executive of the British Bankers' Association told BBC television yesterday.

The government said late last week it was considering a tax on banks as one of its revenue-raising options, ahead of finance minister Alistair Darling's pre-budget report last Wednesday.

The most likely scenario is now expected to be a temporary year-long charge for banks on large bonuses, equivalent to around 50 per cent of the total bonus paid.

A one-off tax on variable pay above a certain level and a tax on bank profits are also being considered, but would be harder to implement. A tax on banking earnings could further hamper the industry's recovery and limit lending.

The news hit banking shares yesterday, helping to drag down the sector on a weak day for the market. At 16.18 GMT, Royal Bank of Scotland shares were down five per cent at 32.9 pence, while Lloyds was down almost four per cent at 53.8 pence.

Bankers said it would be difficult to impose a tax on specific individuals due to EU anti-discrimination rules, arguing any move would more likely be focused on the banks, attempting to deter them from paying any bonuses at all.

Several industry figures said it was difficult to know what would happen as it was clearly a politically charged environment with only months to go before a general election and "fat cat" banker bonuses were still highly controversial.

While a one-year hit - which could extend to the British arms of international banks based in London - might not have a lasting impact it would come on top of other factors, such as a higher rate of income tax, that risks making London unattractive as a financial centre, industry executives said.

Ms Knight, who warned the bonus issue only affected a "small number" within the banking sector, said there was evidence of both companies and individuals already moving abroad to escape Britain's increasingly onerous taxes.