July budgets: UK Small banks complain on new 8% surcharge

Following the July Budget, banks will have to pay an 8% tax charge on profits of more than £25m, starting next year.

At the same time, the bank levy, which affects the larger banks, will be gradually reduced.

 

But the small banks argue that the new tax will harm their ability to lend money, and they want it reformed.

"The only way to address the too-big-to-fail problem is to foster the development of smaller banks," said Paul Lynam, the chief executive of Secure Trust Bank, one of the smaller banks involved.

Speaking on Radio 4, he argued that the bigger banks have other unfair advantages.

"The amount of capital that the smaller banks are required to hold, relative to the larger banks, is disproportionately punitive," he said.

Threat to move

However Chancellor George Osborne has previously argued that the new 8% surcharge is fair, and will increase competition.

The bank levy, which is calculated according to the size of bank's balance sheets, will be reduced in January from 0.21% to 0.18%.

It will subsequently be cut further.

Large banks like HSBC and Standard Chartered had complained that they were penalised, because the levy applies to operations abroad, as well as in the UK.

Because of that, HSBC had threatened to move its headquarters outside the UK.

In July the chancellor announced that in six years' time the levy would only apply to a bank's UK operations.