The government is preparing to cut the tax it expects to impose on City banks through George Osborne's £2.5bn a year levy, prompting a furious reaction from tax experts and opposition MPs.

After being alerted by leading banks that the proposed levy could raise an unexpectedly high £3.9bn a year, the Treasury is considering cutting the rate of the tax on UK and international banks to ensure the chancellor's £2.5bn target is not breached.

The Treasury had consulted on a levy that would consist of a charge of 0.04% of a bank's total balance sheet in the first year — generating £1.1bn — rising to 0.07% in 2012-13 to raise £2.3bn and up to £2.5bn in 2013-14. But the draft legislation, published last month, does not specify these figures, to clear the way for the Treasury to cut the levy.

Chuka Umunna, a Labour MP on the Treasury select committee, said: "It's just a limp piece of legislation and a sop to those who have been arguing that the financial services industry should contribute more to deficit reduction."

Richard Murphy, director of Tax Research UK and an advisor to the TUC, concurred. "It is designed to be modest ... £2.5bn is a modest charge especially if set against bank bonuses of £7bn."

The Centre for Economic and Business Research has forecast that £7bn will be paid out in bonuses this year, with about half of that being paid in personal taxes.

In last month's comprehensive spending review, Osborne said that the bank levy needed to be set in such way to extract the "maximum sustainable" tax revenue. City sources said the move was recognition that if the levy was set too high banks might be driven offshore.

The Treasury insisted no decisions had been taken. "Having finalised the detailed design, we are considering whether the rates proposed at budget are appropriate to deliver the expected yield. Rates will be announced when final draft legislation is published towards the end of 2010, as part of consolidated draft clauses planned for the finance bill 2011."