MPs of the Treasury Select Committee have grilled chancellor George Osborne, questioning him on a variety of issues, including the new bank tax.
Led by Mark Garnier, the chancellor was asked to explain his justification for replacing the bank levy with a new surcharge.
At the committee hearing, Garnier said:
I welcome the change of stance around the bank levy, especially for international banks who face that on international balance sheets.
But, given the larger banks benefit from bigger resources, what the bank levy managed to achieve was to get a slightly more level playing field by challenger and established banks. By reducing bank levy you've removed levelling of playing field.
George Osborne defended his decision, saying the bank levy had been chosen over a financial activity tax, to drive down leverage in the system. However, he said there was a problem of sustainability associated with the levy:
We want UK to be international location for banks, and if you tax worldwide balance sheets you’re creating incentives that work against that. I think this balance is better – it’s a levy on domestic balance sheets.
When Garnier moved on to the surcharge, he said 200 banks would be affected by the new eight per cent surcharge, limiting smaller banks' ability to grow in the early stages.
However, the chancellor said the UK was lowering corporation tax to one of the lowest in the world, meaning the market will still be competitive in the UK.
We’re doing other things too. We're reforming payment system, breaking up monopolies, making sure regulators are quicker at giving banking licences.
On the question of selling Royal Bank of Scotland shares, Osborne said in reply to Labour MP Wes Streeting's questions that while shares are worth significantly less than what the government paid for them in 2008-09, selling now is the right thing to do because “it is right for financial stability” and the economy for the state to leave the industry to the private sector.
Osborne concluded the line of questioning, saying what he set out is a sustainable system for the long term. “It’s never easy finding people to tax, but I think we get the balance right with the financial sector here.”