George Osborne and Vince Cable must be careful that a new banking levy does not put London at a competitive disadvantage, experts warned today.

Speakers at the BCO conference stressed that, while there will need to be a banking levy in the UK, the Conservative-Liberal Democrat coalition government must ensure it is not set at a level that makes London unattractive compared to its competing financial centres.

Sir Howard Davies, director at the London School of Economics, said this was the biggest threat to London's status as a world financial centre.

"The key is not getting out of line with your neighbours," he said. He said he also expected VAT to rise to 20% to help cut the deficit.

Bridget Rosewell, chairman of economist Volterra Consulting, also warned about cuts to transport schemes.

"I think the proposed benefits of Crossrail are massive," she said. She added there should also be big cuts to public sector pay, and not just pay freezes.