By Oliver Smith on Thursday 28 October 2021
But critics say the reduction in bank tax rates isn’t enough to support fintechs.
Neobanks like Starling, Monzo and OakNorth will be exempt from the UK’s banking corporation tax surcharge until they reach a higher ceiling of £100m in profit.
Previously banks would pay an additional 8 per cent tax on their profits over £25m, a tax which originated in the wake of the financial crisis, but which will also be reduced to 3 per cent from April 2023.
The changes were announced by Chancellor Rishi Sunak yesterday as part of his Autumn Budget, and were welcomed by the digital banking sector.
“Let’s be honest, a tax cut for banks is never going to win widespread support,” said Anne Boden, CEO and founder of Starling Bank.
“But, by reducing the bank surcharge and increasing the threshold at which banks have to pay it, the Chancellor is recognising the fact that challenger banks such as Starling are elevating standards in consumer banking, forcing the old banks to raise their game and providing real benefits for consumers.”
OakNorth's head of regulatory affairs Nick Lee, who has been championing such a change for quite a while, said the move would enable the bank to "to further grow its loan book and lend more" to the kinds of 'missing middle' businesses let down by the traditional banking sector.
"For too long, newer, profitable challenger banks established after the crisis, have been treated unfairly as they look to grow, lend more and compete with the large systemic banks in the UK," he said. “It’s a move in the right direction and should help level the playing field for new challenger banks when it comes to competition."
Janine Hirt, the CEO of fintech membership body Innovate Finance, also celebrated the change saying it would “accelerate more innovation in the banking sector”.
Ultimately the changes in the budget don’t result in a tax reduction for banks, with the overall rate of corporation tax still increasing from 27 per cent to 28 per cent as a result of the base rate of corporation tax rising to 25 per cent as announced in the Spring Budget.
As a result, the share price of several listed banks including Barclays and Lloyds ended the day trading lower.
Not everyone was a fan of the changes either. Louise Beaumont, chair of techUK's Open Finance and Payments Working Group, wrote in City AM that lowering the headline surcharge rate from 8 per cent to 3 per cent was “an act of self-flagellation” by the Chancellor as it mainly benefitted the biggest banks.
Earlier reports that Sunak would extend the Recovery Loan Scheme (RLS) by six months were also confirmed by the Chancellor, however he also reduced the maximum loan size covered by the RLS from £10m to £2m.
Ravi Anand, managing director of SME lender ThinCats, criticised the reduction as a move that would further limit the RLS to the smaller end of the SME market.
“Medium-sized SMEs, who represent 30 per cent of UK GDP, are vital for creating jobs and growth and we may soon find the lending gap widens again,” said Anand, who’ll also be speaking at the AltFi Lending Forum in London on 4 November.
“Our experience is that bank lending in this space is patchy at best, and therefore funding for businesses who are looking to grow and invest will be more constrained and, when available, more expensive.”
We learnt earlier this week that the RLS has only been used to guarantee around £1bn in lending to SMEs, versus the over £80bn lent out under previous emergency lending guarantees.
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