Bank of England to probe George Osborne's new bank tax

George Osborne’s new tax on banks is facing fresh scrutiny from the Bank of England after MPs urged Threadneedle Street to consider the implications for competition in the sector.

Banks such as Metro and Secure Trust – which are trying to take on the “big four” on the high street – have been arguing that the tax puts newcomers at a disadvantage. In July, the chancellor announced that the Treasury will impose an extra 8% of corporation tax on banks making profits of more than £25m from next year, in a move that will also hit the balance sheets of smaller players.

The Treasury select committee is now asking Andrew Bailey, a deputy governor at the Bank of England, if that 8% surcharge has implications for competition in a sector dominated by Lloyds Banking Group, Royal Bank of Scotland, HSBC and Barclays.

Bailey, who runs the Bank’s regulation arm – the Prudential Regulation Authority – is also being asked to consider capital rules which have also prompted protests from smaller banks.

The intervention of the select committee, chaired by the Conservative MP Andrew Tyrie, comes just weeks before the Competition and Markets Authority (CMA) is due to publish preliminary findings on its investigation into personal current accounts and banking for small businesses which was launched in July 2014. Tyrie has already urged the CMA to consider the implications of the tax as part of its investigation.

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.

“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 8% corporation tax surcharge is being introduced alongside changes to the bank levy, which is based on the size of bank balance sheets rather than their profits. The scale of the bank levy is being reduced under the new system. The changes are said to benefit large international banks such as HSBC and Standard Chartered because they paid the levy on the whole of the balance sheet while challenger banks were not big enough to be captured by the levy.

The change to the levy came after complaints from HSBC whose chief executive, Stuart Gulliver, said in May that the £700m it paid towards the bank levy was impeding his efforts to bolster returns to shareholders. The bank is currently considering whether to remain headquartered in the UK.

Powered by article was written by Jill Treanor, for on Friday 9th October 2015 00.01 Europe/ © Guardian News and Media Limited 2010


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