Challenger banks receive shot in the arm from Tory opposition

In the emergency budget, Chancellor George Osborne announced that the 8% levy on bank profits would boost Treasury coffers by £6bn. A study by EY has reassessed what the new bank tax will generate and forecasts double the income for HMRC.

Even before the revised estimate, there were doubts about how fair the new tax was on Challenger Banks. Osborne set the lower threshold for qualification so low that even the newest banks would need to delve deep to pay it.

However, Labour has joined forces with the Challenger Banks in an attempt to revise the bill. On the back of an open letter, a consortium representing Challenger Banks will meet with Treasury Top Brass this week.

Why is Osborne punishing Building Societies?

Fair competition and ratio of profit to top line aside, there’s another burning question in the Chancellor’s reform. The blame for the economic crisis has fell firmly at the feet of banks. Building societies were not only less to blame, but actually increased lending when the banks were unable to.

Yet the new tax will affect them as much as those financial institutions whose recklessness fuelled economic collapse.

Both Nationwide and Yorkshire building societies have voiced their opinions. Nationwide’s Graeme Beale used the Telegraph as his platform to hit out the tax. Yorkshire’s Andy Caton said that he would welcome a review of the impact of the new levy across the sector.

Keeping an EY on the market

Richard Milnes of EY maintains a strong line on what the post-financial crisis landscape would look like for the financial industry. Banks knew that it would be tough to reign in the measures that fuelled the crises. But his concerns lie with the ‘sustained assault’ that banks have had to face since accepting reform was necessary.

Reading between the lines, a lack of consultation with the banking sector is the reason successive governments are failing to hit the mark with their policies. The punitive measures take a carte blanche view of the banking sector, whereas in reality, there are many arms to a bank’s operation that need individual appraisal.

Later in Autumn, EY will publish more detailed statistics of the “unintended consequences” of the new levy based on their findings. The question is, if an independent can see the landscape, why can’t the government?

Chancellor to fall short of projected savings, according to NAO report

This ignorance is not only a concern for the sustainability of UK banking, which the government is so keen to deliver to the rest of the world as the benchmark by which all other countries should measure themselves. But it is also a grave concern for the taxpayer.

Last week, the National Audit Office highlighted the “significant growth” of the amount of financial institutions in which the government now has a controlling say.

In 2007, the government controlled 27 financial bodies. The NAO’s report is the first of its kind and seeks to collate government-controlled financial interest. That 27 has now doubled to 54, including small business lending.

Over the term of this government, the NAO’s report suggests that the government will pay out £95bn. Student loans, Green Investment and British Business banks alongside Help-to-Buy mortgages will be the beneficiaries.

Asset sales + Cuts ≠ Taxpayer Savings

The problem is, the government’s projection for its term is to make £20bn in savings. This it will do by selling assets and making cuts in various government departments.

The projected income in the NAO report falls short of the £95bn the government is set to pay out by some £200M. That’s based on the current assets likely to be sold and the projected cuts and is a far cry from the £20bn Osborne is looking to save.

Challenger banks and Labour are asking the government to consider “the structure of bank balance sheets”, alongside other aspects, to reduce the new levy on banks’ profits. Before the government can do that, it has to understand the basics of accounting.

With current projections from all around, it seems that Chancellor Osborne is not only not on the same page, but he’s reading a different set of books altogether.

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