‘New taxes will punish smaller banks’ says leading Midland banker
Punitive new taxes are set to punish successful smaller banks unfairly, according to a leading Midland banker.
Paul Lynam, chief executive of Solihull-based Secure Trust Bank, who also heads the British Bankers’ Association’s challenger banks panel, has hit out at a new eight per cent bank corporation tax surcharge which they all must now pay.
The new measure was announced by Chancellor George Osborne in his July Budget, and is a counter-balance to the gradual reduction of the bank levy which the Chancellor has pledged to reduce from 0.21 per cent to 0.1 per cent over the next six years.
The surcharge will take an additional eight per cent of banks’ profits each year for the Government, on top of existing corporation tax.
While around 30 big banks pay the bank levy hundreds of smaller banks and building societies will be paying the new eight per cent surcharge.
Mr Lynam, who is originally from Dublin and formerly held senior roles at RBS, feels the Chancellor’s attempt to balance the books is unfair on smaller banks who have grown, lent to SMEs and not called on government support.
Although the finer detail of the move is yet to be established, Mr Lynam says it will impinge unfairly on the smaller banks.
He said: “At this stage we haven’t seen the final proposals, it is still going through the committee stage but does mean challenger banks will have to pay more, so the rate of capital generation will be slower.
“We will have to adjust the rate of lending across challenger bank panel over the life of this Parliament. It reduces the amount of lending growth by up to £10 billion.
“Clearly we are not very happy about that as we are being used to subsidise bigger banks which have benefits that challenger banks do not have.”
Mr Lynam said, while the bank levy would only apply to banks with more than £25 billion worth of assets, the eight per cent surcharge would be applied to all banks – in effect a new tax to subsidise tax cuts for bigger banks.
He said: “Small banks and building societies, which number hundreds, will now be paying a tax they haven’t had, which by definition will be used to subsidise reducing the bank levy that has only been paid by banks with more than £25 billion worth of assets.
“Smaller banks and building societies are being squeezed to pay for lower taxes for the bigger banks.”
Mr Lynam said the latest move flew in the face of government pledges to create a more competitive banking market and that if the Government really wanted to create a “level playing field” it needed to address some of the advantages big banks have, such as being able to obtain funding on more preferential terms.
“The Government is talking about competition in the UK banking market but as soon as it does that it hits smaller banks and challenger banks with a tax out of the blue,” said Mr Lynam.
Mr Lynam spoke as Secure Trust announced a strong set of interim results for the first half of 2015.
The bank saw its profits increase by 40 per cent and its assets exceed £1 billion for the first time, even though it had also invested heavily in the development of an SME lending division.
The group achieved a record level of profit before tax of £16 million, compared to profits of 11.4 million in the first half of 2014.
Customer numbers increased by 24 per cent from 391,610 to 486,805.