Challenger banks are to meet Treasury officials later today in order to pile pressure on the chancellor to reverse the bank surcharge he is imposing.
George Osborne has opted for a bank surcharge of eight per cent on profits over £25m, which challenger banks and building societies say will harm their operations.
Chairman of Oaknorth Bank Cyrus Ardalan said to BBC Radio 5 Live that the government is keen to encourage competition in the sector and wants to grow challenger banks.
However, he said: “The tax acts as a strong disincentive for new challenger banks to develop. It increases costs of business and discourages capital from coming into the sector.
And for those [challenger banks] already there, by taking a portion of retained earnings away it reduces the ability of banks to grow. It does not fulfil the objectives set.
Yesterday Andrew Tyrie, chairman of the Treasury Select Committee, attacked the tax, saying:
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 this surcharge does not act as an impediment to the government’s efforts to increase competition.”
The tax, opted for over the bank levy after that was withdrawn amid pressure from larger banks including HSBC, adds complexity and costs to challenger banks, making it harder for them to expand.
This comes after it was revealed by City A.M. last month that building societies were meeting with the Treasury to ask them to consider other options to the bank surcharge.
Two years ago chancellor George Osborne heralded changes in banks, calling for a new generation of challenger banks to compete with the big four.