The changes to the bank levy, announced in the July budget, involve introducing a new 8% surcharge on bank profits from the 1st January next year.
Commenting on the correspondence, Andrew Tyrie MP said:
“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 competition from new and smaller banks is not unnecessarily impeded by prudential regulation.
“The ‘challenger banks’ argue that they suffer a competitive disadvantage because - not having traded long enough to qualify for the lower risk weights available to established banks – they are required to hold more capital. This lowers their profitability, relative to the well-established big banks, and thereby reduces their attractiveness to investors.
“The PRA has taken steps to resolve this problem by adapting the capital requirements applied to new banks. The ‘challengers’ want further adaptations to compensate for the future impact of the new corporation tax surcharge on their bottom line.
“It is essential that the surcharge does not obstruct Parliament’s efforts over the last four years to increase competition in the banking sector. The Committee will want an assurance from the PRA that it has assessed its effect on competition in the retail sector.”
The BBA has already criticised the tax, and is asking the government to hold a strategic review of bank taxation.
The BBA argued that the Bank Corporation Tax Surcharge is the fifth new bank-specific tax measure introduced in as many years, and added that while the Bank Levy was paid by 30 banks, the new tax will be levied on hundreds of banks and building societies.
Nationwide also announced that the impact of the proposed changes to the bank levy and introduction of a tax surcharge on banks will cost the society around £300 million over the next five years.
In its interim statement, Nationwide's chief executive Graham Beale said that this is equivalent to the capital required to support about £10 billion of lending, and that the impact will be larger in earlier years.
Commenting, BBA Chief Executive Anthony Browne said:
“Banks expect to pay their fair share of tax. But they are concerned that they are being singled out for new punitive taxes every year. This makes it harder for banks – the UK’s biggest export industry – to lend to businesses and create new jobs.
“The new Bank Corporation Tax Surcharge will undermine competition by creating an additional new tax for lots of smaller banks.
“While it is good that the Government wants to amend the Bank Levy so that it no longer penalises global UK banks these changes will not come into force until 2021 under the next government. This has led some to question whether they can believe that this reform will ever actually come into force. Banking is one of the most globally mobile businesses, that is why we would like the UK Government to hold a strategic review of bank taxation to ensure we remain competitive.”
