TSB and Co-op Bank among lenders set to receive £ 4 billion tax cut | Banking

TSB, Co-operative Bank and Leeds Building Society are among lenders slated to escape a tax imposed on the sector, following Chancellor’s announcement of a £ 4bn tax cut sterling in his budget speech on Wednesday.

Rishi Sunak said the government would increase the proportion of profits exempt from the bank surcharge from £ 25million to £ 100million from April 2023. This means that the first £ 100million of income from any bank will avoid the sector tax, which is also expected to fall. from 8% to 3% that year.

The Treasury confirmed that the more generous “allocation” would allow around 35 banking groups and real estate companies to completely avoid the surcharge.

“Some names to which the surcharge will no longer apply include OakNorth, Tesco Bank, Secure Trust Bank and Shawbrook,” said John Cronin, financial analyst at stock brokerage Goodbody. “Some of the construction companies are going to fall out of the net as well. “

Leeds Building Society, which reported profits of £ 80.7million in 2020, could also avoid the surcharge entirely, as could the Co-operative Bank, which is expected to report its first annual profit in more than a decade this year. .

The TSB could also benefit, depending on the pace of its recovery. The bank reported a loss of £ 205million last year, but made profits of around £ 46million before the Covid crisis hit its bottom line.

A spokesperson for the Treasury said the government would not confirm which banks would be exempt, due to taxpayer confidentiality.

However, Cronin said the increase in the threshold would be “very beneficial for the challenger banks more broadly, including those with profits above £ 100million. Indeed, the surcharge will only apply” to the portion of profits exceeding £ 100million – and challengers’ profits generally do not greatly exceed that level. “

The move aims to help smaller banks compete with larger competitors, including Lloyds, HSBC, NatWest and Barclays.

Meanwhile, the surcharge reduction is intended to offset the 19% to 25% corporate tax increase slated for 2023. The Treasury said it will also ensure the UK can continue to compete with other financial sectors, notably New York and Germany, where efficient bank tax rates are 26% and 32% respectively.

Together, the reduction in the surcharge and the increase in the allocation will cost the Treasury around £ 4 billion over the five years to 2027, according to the Office for Budget Responsibility’s forecast of bank profitability.

Simon Youel, policy and advocacy manager for the Positive Money campaign group, said: “At a time when ordinary workers face a cost-of-living crisis, with cuts in universal credit, hikes in national insurance and an increase in household bills, tax cuts for bankers is a worrying sign of government priorities.

Fictional Chancellor Rachel Reeves, responding in Commons to Sunak’s budget speech, said “at least bankers on short-haul flights sipping champagne will applaud this budget,” alluding to the surcharge cuts as well as ‘Sunak’s plan to cut taxes. on domestic flights and sparkling wine.

Anne Boden, managing director of digital lender Starling Bank, said she understood that a tax cut for banks “was never going to gain broad support,” but it meant Sunak recognized that the challenger banks “Raised the standards of consumer banking, forcing the old banks to raise their level of play and bring real benefits to consumers.”

A spokesperson for the Co-operative Bank agreed, saying the increase in the allocation would help midsize banks “continue to offer healthy competition.”

Banking lobby group UK Finance said it welcomed the reduction in the surcharge, but urged the Treasury to maintain the industry’s total tax rate under review. “This will ensure that the UK continues to be an attractive place to do business, is globally competitive and enables the sector to support economic recovery and the net zero transition.”

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