Britain's Chancellor of the Exchequer Gordon Brown abolished withholding tax on interest from international securities, delighting City of London banks which have long argued for change.

Banking industry bodies said the surprise announcement in Brown's budget speech would greatly simplify securities taxation in the UK.

Brown said the 20 per cent tax at source would be abolished from April 1st, 2001, and replaced with simpler and less burdensome requirements to provide information to the Inland Revenue.

Sir Adam Ridley, director-general of the London Investment Banking Association, said abolition represented "a significant simplification" to the UK tax system. "We have been asking for this for some time."

A spokesman for the UK Treasury said the move was consistent with the government's line in Europe, where it is pushing information-sharing as an alternative to the tax.

Abolishing withholding tax for UK residents will generate an upfront cost to the Treasury of £300 million next year, the Treasury spokesman said, although he stressed that the money would be raked back over time.