The Treasury is under fire from Britain’s building societies, who say that a new tax will cost them at least £630m over the next five years – and choke off £20bn worth of lending.
Mortgage lenders want the government to think again. “As you would expect the sector is positively engaging with HM Treasury,” Building Societies Association chief Robin Fieth told City A.M.
Yorkshire Building Society boss Chris Pilling confirmed the talks. “We are fully engaging in conversation with the HM Treasury about our concerns,” he said.
Chancellor George Osborne wants to gradually reduce the bank levy rate over the next six years from 0.21 per cent to 0.1 per cent, while introducing a new tax on the entire sector, including building societies and smaller “challenger banks” that are currently exempt from the charge.
After the changes made in the Budget, six building societies will have to pay an eight per cent surcharge on profits over £25m, whereas only Nationwide previously had to pay the levy.
Nationwide boss Graham Beale hit out at Osborne yesterday, saying that the new tax would cost his company £300m by the end of the decade.
“This represents a missed opportunity to support diversity by acknowledging that building societies are different to banks,” he said.
“It’s a perverse move to put an extra tax on building societies,” added David Cutter of rival building society Skipton. “It will leave less to invest in the future of our business and to fund lending. We are making our views known to the government.”
A finance bill, which includes the proposal, is due to be debated in committee on 8 September. Yet City A.M. understands that the influential Treasury Select Committee (TSC) will publish its own recommendations on the chancellor’s proposal later this year, which may call for the Treasury to revisit the surcharge.
MPs on the TSC are unimpressed with the government’s position. “I completely agree with Nationwide,” said Mark Garnier. “There is a very, very strong case for carving mutuals out of this because of their capital-raising model.”
Osborne is right to replace the bank levy, Garnier said, but conceded: “Maybe we have gone a little bit too far.”
Fellow TSC member George Kerevan added: “The bank levy was a very effective way of paying the taxpayer for bailing out the big banks… [but] smaller institutions were not the cause of the problem and are, perhaps, the solution.”
Last night, the Treasury refused to be drawn on specifics.
“We have a constant dialogue with industries on a variety of topics and we don’t give running commentary on developments,” a spokesperson said.