George Osborne has received a new warning about the potential impact of his new tax on banks amid concerns it will impede new entrants to the sector.
Andrew Tyrie, chairman of the Treasury select committee, raised the potential competition threat on the eve of a meeting between Treasury officials and representatives of the challenger banks, such as Metro and Secure Trust, about the tax which was announced in July’s budget.
Banks are to pay an extra 8% of corporation tax on profits over £25m, while the bank levy – introduced in 2010 and based on the size of banks’ balance sheets – is being scaled back. Taken together, the policies are regarded as benefiting major banks with international operations, such as HSBC and Standard Chartered, at the expense of smaller, newer banks, which would not have fallen into the scope of the bank levy.
Paul Lyman, chief executive of Secure Trust and chair of the British Bankers’ Association’s challenger bank panel, said if the Treasury was not ready to make changes it should create a more level playing field. “We want to find out if the government remains as committed as they said they are to competition in the banking market,” he said.
Tyrie said the Competition and Markets Authority, which is expected to publish its preliminary findings on high street and small business banking next month, should look at the impact of the tax.
“Millions of consumers and small businesses have been getting a poor deal for decades because of inadequate competition and choice in banking. It is crucial that this surcharge does not act as an impediment to the government’s efforts to increase competition in the sector,” he said.
“This is something that the CMA will want to take into account in their retail banking market investigation, and that the committee will be discussing with them when they complete their work.”
Four banks – Lloyds Banking Group, Royal Bank of Scotland, HSBC and Barclays – control a combined market share of about 75% of small business and retail banking. The CMA’s findings into the banking sector, originally due in September, are expected in October. The watchdog said: “We’re aware of the issue and it’s something we’ll be considering as part of our ongoing and wide ranging investigation.”
The 8% corporation tax surcharge will be imposed from January, while from 2021, the bank levy – which has brought in £8bn in five years – is to be focused on the UK element of bank balance sheets rather than their global balance sheet. During the budget, Osborne told MPs the levy “risks doing harm” without the change and that the surcharge was needed to keep revenue from banks coming in.
The Treasury said before the meeting with the challenger banks that it had taken steps to support their growth. “We’ve put competition at the heart of the regulatory system, significantly reduced barriers to new banks entering the market, and made sure that all banks – big or small – can access the payment systems on fair terms. We are also creating a tax regime for the banking sector that is sustainable and fair, and any bank that makes less than £25m profit a year will be exempt from the banking tax surcharge.”
John Mann, a Labour MP who sits on the Treasury select committee, has tabled an amendment to the finance bill to exempt any bank or building society from paying the tax if it has a balance sheet of less than £25bn – essentially the new entrants and many of the building societies.
Tyrie, however, said both banks and building societies carried risks, citing evidence from Andrew Bailey, deputy governor of the Bank of England and head of the regulation arm, the Prudential Regulation Authority, in March.
