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Andrew Tyrie wades in on bank tax debate

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  • 09/10/2015
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Andrew Tyrie wades in on bank tax debate
Treasury Select Committee chairman Andrew Tyrie has written to the Prudential Regulation Authority (PRA) for reassurance on the impact of the government’s new corporation tax surcharge on smaller institutions.

The decision to implement a tax surcharge to replace the bank levy was announced by Chancellor George Osborne in his summer Budget. Instead, banks will be subject to an 8% surcharge on their profits from 1 January next year.

In his letter to Andrew Bailey, deputy governor at the PRA, Tyrie cited a recent idea floated by challenger banks that a reconsideration of the approach used to calculate the capital requirement of these lenders could ease the pressure of the tax changes.

Among a number of questions posed to the PRA, Tyrie queried whether the new corporation tax surcharge will make competition more open or instead strengthen the position of the banking sector’s main players.

Challenger banks and building societies have voiced concerns following Osborne’s announcement that the replacement of the bank levy could damage entry into the market and business expansion.

Tyrie wrote: “Challenger banks have long argued that the difficulties of satisfying the conditions required to use the internal ratings-based (IRB) approach to calculating risk puts them at a competitive disadvantage.”

The IRB approach allows banks to use their own estimated risk parameters to calculate regulatory capital.

Tyrie added that recent analysis conducted by the Competition and Markets Authority concluded that on a like for like basis, the IRB approach was “likely to lead to significantly lower capital requirements than the standardised approach”.

In August, Nationwide reported in its interim management statement that the new tax surcharge would cost it an estimated £10bn in lending over the next five years.

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