Independent banks that are rivalling the big high street institutions have appealed to the chancellor over the new bank tax, which they say will disproportionately affect their ability to lend to small businesses.
A group of challenger banks have asked George Osborne to “level the playing field” and that they will still attempt to lend more despite the surprising 8 per cent tax surcharge, which will be levied upon banks’ UK profits over £25m from 2016.
The appeal comes after a number of the new banks met with senior Treasury official Charles Roxburgh to voice their concerns over the new tax. They argued that it could restrict lending to small businesses by as much as £6 billion over the next five years.
According to people close to the parties, the chancellor’s position remains as firm as when he sent out the letter to banks telling them that there would be no changes made to the tax for now.
The challenger banks are now considering ways to achieve their aims of lending more despite the new surcharge. One of the ideas includes re-evaluating how banks are forced to hold different capital amounts to make loans.
The challenger banks’ relative novelty is what counts against them – they must hold more capital as a buffer compared to the bigger banks because they have fewer years of collected data on the viability of their models.
This therefore makes it less economical for the smaller banks in terms of lending. “If smaller banks are to be put on the same tax footing as larger banks, then how do we also get put on the same competitive footing in terms of capital and funding?” asked Mr Lynam, chief executive of Secure Trust Bank.
In the letter to the chancellor, the banks will also ask for the extension of the Funding for Lending scheme, according to one source.