The chancellor introduced the surcharge to partly replace the bank levy – a tax on the global balance sheets of the biggest banks – which has not been well-received by the big players in the industry.
It also saw HSBC confirm its plans to reassess its presence in the UK – having moved headquarters from Hong Kong to London in 1993.
Osborne’s latest move has been met with unhappiness from challenger banks, as the new charge also affects smaller lenders. Chief executives of TSB and the Yorkshire Building Society have called on the chancellor to amend this so each would be excluded.
TSB’s CEO Paul Pester said the eight per cent tax, which banks will face as well as other taxes including corporation tax, would make it more difficult to compete with the big banks.
“We’re supporters of the new tax and the approach the government is taking – it is appropriate that banks need to continue to support society,” Pester began. “But the tax kicks in at £25m of profits and we’ve made our views clear to the Treasury, that we would love to see that level raised a bit.”
He added that this would take “a big chunk off our profits” and consequently would make it “more difficult for us to invest to grow and to bring more competition to the UK market”.
The rise of challenger banks has seen them providing more tailored offerings and looking to fill in the gaps left by the bigger options – including focusing on smaller businesses.
The government had been a supporter of encouraging competition within the sector, adjusting regulations in order to make it easier to establish a bank and easier for customers to move between banks.
Pester feels the tax undermines this, and instead believes the threshold for paying the tax should be increased, possibly up to £250m of profits a year.
Elsewhere, Yorkshire Building Society’s Chris Pilling said: “The level of lending can only continue if we can retain our profits and reinvest them back into our business. The government’s proposal to introduce a bank surcharge of eight per cent on all banking services organisations’ profits over £25m will unfairly hit the six largest building societies, with these institutions paying about a third of the additional £1.7bn expected to be raised over five years.”
The British Bankers Association has also claimed the tax will harm the ability of banks to lend to businesses and create new jobs.
Osborne had said the levy would be replaced with a surcharge on profits, but the schemes would run concurrently until 2020, placing additional burden on lenders and resulting in an additional £40bn tax bill for the end of the decade.
Paul Lynam, CEO of Secure Trust, also claimed that the smaller banks would be hit hard by the additional eight per cent, admitting the sector felt “intense frustration” at its introduction.
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