In a highly unusual move Mr Diamond accused the Treasury of breaking taxpayer confidentiality by identifying Barclays as the bank at the centre of what officials had described as an “aggresive tax avoidance scheme”. The action was “completely unwarranted”, Mr Diamond said.
The Chancellor George Osborne has now been asked to explain actions taken by his department reports The Telegraph.
The dispute centres on a decision by the Treasury in February to close a multi-million pound tax avoidance scheme which David Gauke, the Exchequer Secretary, disclosed at the time involved a bank. Although the bank was not named, it quickly became known that it was Barclays.
In a letter released on Monday, Mr Diamond said: “The way this situation was handled seems to us completely unwarranted.
“Unnecessary damage was placed on Barclays’ reputation just at a time when the focus should be rebuilding confidence and accelerating growth, not undermining it.”
The letter from Mr Diamond to chairman of the Treasury Select Committee, Andrew Tyrie, has been passed on to the Chancellor with a request for his comments.
It is thought the spat about the £500m tax dispute could lead to Treasury ministers and tax officials being called before the Select Committee.
Although Barclays declined to comment on the letter on Monday, it is understood the bank was concerned that it had been dragged into the row so that the Government could make political capital about being tough on tax avoidance by banks.