Osborne’s new bank surcharge ‘is tax on lending to SMEs’

Iain Cornish
Iain Cornish
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A FORMER advisor to the Bank of England has warned that the Government’s new surcharge on banking profits is a tax on lending to small businesses.

Iain Cornish, chairman of Shawbrook Bank, spoke out ahead of a meeting between the heads of challenger banks and Treasury officials next month.

They are expected to lobby for the levy’s threshold to be raised to help ensure a more level playing field with Britain’s banking giants.

The 8 per cent surcharge, which kicked in last month, is applied to profits of £25m or above, meaning that many smaller lenders are affected.

Chancellor George Osborne introduced the levy to “maintain a fair contribution” from the banks in respect of the risks they pose to the UK economy.

Mr Cornish told The Yorkshire Post: “Obviously it is not a surcharge we welcome. The consequence of it is if you take profit out of challenger banks then it directly reduces our capacity to lend, compete and attract further capital.

“​Challenger banks are an important source of competition to established players. Banks like Shawbrook also specialise in lending to small and medium sized businesses, which are a powerhouse of the economy.

“Effectively this surcharge is a tax on our ability to lend to that sector.

“Whilst we can be sympathetic to that sort of tax on the major banks it is hard to see how it is justified in the case of challenger banks.

“We do not receive an implicit guarantee from the state and obviously we were not the source of the problems in the financial crisis. It’s very hard to see how it is justified on these terms.”

Mr Cornish was a founding board member of the Prudential Regulation Authority, which was set up by the Bank of England in 2013 primarily to promote a safe and sound financial services industry but also to help stimulate competition in the sector. He stepped down last March.

The meeting with Treasury officials is expected to be attended by representatives from lenders including TSB, Tesco Bank, Close Brothers, Paragon and Secure Trust Bank.

They are competing against the likes of Royal Bank of Scotland, Lloyds, Barclays and HSBC.

Secure Trust CEO Paul Lynam said: “The small and challenger banks have consistently said that the huge disadvantages they suffer in capital and funding terms need to be addressed in order to create a level competitive playing field that will allow more effective competition to foster.

“They have written to the Competition and Markets Authority in this respect already.

“The Bank of England and European Banking Authority have recently acknowledged that a more proportionate approach to bank regulation is desirable. This is encouraging.”

A spokesman for the Treasury said: “We’ve introduced an extensive range of measures to support challenger banks.

“From putting competition at the heart of the regulatory system to significantly reducing barriers to new banks entering the market, we are making sure that Britain has a level playing field.”