9th October 2015
A senior Conservative MP has challenged chancellor George Osborne over his plans to tighten the capital rules for banks, stating it could hit competition and lead to a poor deal for consumers.
Andrew Tyrie (pictured), chairman of the Treasury Select Committee, has raised concerns that the 8% surcharge on UK bank profits will not disproportionately hit new challenger banks and allow the established high street banks to further tighten their grip on the market.
In a letter to the Bank’s Prudential Regulation Authority (PRA) he said: ‘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,’ he said.
Challenger banks, such as Virgin Money, Nationwide and Aldermore, have already criticised the new tax – that will come in next year – and said it will affect profits and restrict their ability to lend.
The new rules also mean they will have to hold more capital than established lenders, purely because they are not established enough to qualify for discounts.
‘The challenger banks argue that they suffer a competitive disadvantage because – not having traded long enough to qualify for the lower risk weights available to established banks – they are required to hold more capital,’ said Tyris.
‘This reduces their profitability, relative to the well-established big banks, and thereby reduces their attractiveness to investors.
‘The PRA has taken steps to resolve this problem by adapting the capital requirement applied to new banks. The challenger want further adaptations to compensate for the future impact of the new corporation tax surcharge on their bottom line.’
Tyrie said it was ‘essential’ that the new tax ‘does not obstruct parliament’s efforts over the last four years to increase competition in the banking sector’.
‘The committee will want an assurance form the PRA that it has assessed if effect on competition in the retail sector,’ he said.