Treasury select committee chairman Andrew Tyrie has written to the Prudential Regulation Authority urging it to reconsider a new tax that could hit challenger banks.
In the Summer Budget the Chancellor announced a new 8 per cent charge on banks’ UK profits above £25m from, due to come into force from 2016.
At the same time the bank levy will drop from 0.21 per cent to 0.1 per cent by 2021.
In September, the Building Societies Association warned the charge could take up to £20bn out of the mortgage market over the next five years.
Now Tyrie says the PRA needs to give assurance it understands the impact the tax will have on bank competition.
He says: “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 competition from new and smaller banks is not unnecessarily impeded by prudential regulation.”
Tyrie warns challenger banks’ profitability will fall, putting a brake on much needed investment.
He says: “The PRA has taken steps to resolve this problem by adapting the capital requirements applied to new banks. The challengers want further adaptations to compensate for the future impact of the new corporation tax surcharge on their bottom line.
“It is essential that the surcharge does not obstruct Parliament’s efforts over the last four years to increase competition in the banking sector. The committee will want an assurance from the PRA that it has assessed its effect on competition in the retail sector.”