An 8% tax on banking profits over a starting limit of £25m (35.48m) proposed in the UK’s Summer Budget will irreparably damage new banks’ prospects, says a letter from 15 challenger banks to the UK’s chancellor George Osborne.
According a report in the Times, the letter from the challenger banks points out that this could hamper SME lending and economic growth.
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The banks said in the letter that the amount of capital required to pay the new tax will be diverted from funds that could be used for lending. The challenger banks expand the amount they can lend by applying a leverage ratio to their capital. Including leveraged debt the actual loss of business could add up to £10bn (14.9bn), said the letter.
Following the budget announcement last week, challenger banks lost an 10% of their share value.
Julian Rose, director at consultancy firm Asset Finance Policy, confirmed that the new surcharge would hit smaller banks in particular, unless the government decides to review its plans, and there could be further implications for the asset finance market.
"It’s the second time in a year that the Chancellor has thrown a new tax burden at banks, having restricted their ability to use their tax losses in the Autumn Statement last December," said Rose.
"The resultant lack of stability and certainty in bank taxation doesn’t support the government’s ambitions to promote more choice and competition in SME banking. Becoming a bank is looking a less attractive option for growing asset finance companies and this increases the importance of attracting investors to the asset finance market, for which we need better cross-industry data on loan performance."
