Challenger banks and the corporation tax surcharge
Treasury officials discuss the proposed corporation tax surcharge with the challenger bank bosses
Last week, the bosses of Britain’s leading challenger banks met with Charles Roxburgh and other Treasury officials to dispute the proposed corporation tax surcharge.
This meeting follows months of debate and opposition from the challenger banks. This is unsurprising given the surcharge threatens to give the more well-established and highly subsidised high street banks an unfair advantage over challenger banks and newcomers to the highly competitive financial services industry.
First unveiled during Chancellor George Osborne’s Budget in July, the new tax will mean an 8% banking tax surcharge, on top of corporation tax, on lenders’ profits in excess of £25m. This would favour larger players in the industry since, due to the Chancellor’s reduction of the bank levy, bigger banks are expected to pay less overall. Meanwhile, the smaller challengers would have to pay more than ever before in tax.
This financial stranglehold is therefore dangerous to challenger banks, and poses a threat to their crucial role as competitors and disruptors within the industry.
It’s been a record year for challenger banks and the increasingly emergent FinTech industry.
Challenger banks, in partnership with FinTech companies have been undoubtedly leading the way in disrupting the financial services industry through innovation. In fact, according to a recent survey by Interim Partners, an interim management staff provider, more than three quarters of banking sector executives believe challenger banks have a significant technological edge over high-street rivals.
However, this position is likely to be damaged unless the tax surcharge proposals are reconsidered. The UK FinTech sector is currently working hand-in-hand with challenger banks to develop innovative and, crucially, market-leading, competitive products for banking customers. With these higher taxes in place, challenger banks may struggle to invest in such innovations to the degree they are currently able to.
During last week’s meeting, a tiered structure for the tax was proposed, and it was also argued that the rules governing the amount of capital that can be held by the larger banks need to be changed in order to level the playing field. However, definite reconsiderations have yet to be confirmed, and early reports suggest little movement at present.
The implications of the tax surcharge for the emergent Fintech sector in the UK are clear, as are the implications to challenger banks and their customers. Although it remains to be seen what the long-term outcomes will be, hopefully a solution can be arrived at whereby the government’s desire for a “more vibrant and competitive banking sector with new banks and more innovation” can come to fruition.