Banks tell Osborne tax hike threatens jobs

George Osborne’s plan to increase the tax burden on Britain’s fastest-growing banks may threaten their plans to create thousands of new jobs, the industry will warn ahead of a showdown with the Treasury next week.

Sky News has obtained a draft copy of a letter from challenger banks to MPs representing constituencies where the industry employs substantial numbers of people.

In it, they point to the threat to their lending capacity from an 8% surcharge on the Corporation Tax bill of lenders making more than £25m in annual profit.

The letter goes on to say: “In addition to the potential reduction in lending, I am concerned that these changes could negatively impact our job creation in your constituency.”

While potential lending constraints have been frequently highlighted by companies such as OneSavings Bank and Secure Trust Bank since the Budget in July, the warning on jobs opens a new front in what has become an increasingly hostile response to Mr Osborne’s tax proposals.

It emerged two weeks ago that Charles Roxburgh, a senior Treasury official, would meet a group of challenger banks on 11 September to discuss the tax changes.

Mr Osborne told the industry in a letter suggesting the meeting that there would be no change to the surcharge “in this fiscal year”, a statement which has engendered hope among some bank executives that the Government will reduce or abolish it next year.

Some lenders have suggested that the £25m threshold for the surcharge be doubled, while others have complained that the tax changes risk undermining ministers’ objective of stimulating greater competition in consumer and SME banking.

They argue that challengers are already unfairly penalised because capital requirements imposed on them are more onerous than those applied to larger banks.

The Corporation Tax surcharge is being introduced alongside a reduction in the Bank Levy, the level of which is widely viewed as a factor in HSBC’s decision to review the future location of its headquarters.

Paul Lynam, Secure Trust Bank’s chief executive, told Sky News that he and colleagues were also seeking a meeting with Mr Osborne to discuss the implications of the changes.

“It is surely unacceptable that the ‘Too Big To Fail’ banks which continue to enjoy huge capital and funding benefits implicitly subsidised by the taxpayer, will now have the cost of the reduction in their Bank Levy paid for by increased taxes on their smaller and disadvantaged competitors,” he said.

“This policy makes an already deeply uneven competitive playing field even more biased towards the big banks, ensuring the UK taxpayer will be indefinitely exposed to the potential costs of further big bank bailouts whether these are ring-fenced or not.

“I do not believe this situation is in the best interests of the UK taxpayers or the economy as a whole and it is at odds to everything the Government has been saying about fostering competition in banking.”