LONDON: UK building society Nationwide just warned that it’s going to take a £10 billion ($15.5 billion) hit on mortgage lending due to the government’s new tax on bank profits, introduced in July’s budget.
Chancellor George Osborne cut the bank levy — a charge on global balance sheets — in half in the recent budget but introduced an 8% tax on annual profits, which sits on top of corporation tax.In its first quarter update released on Tuesday, Nationwide says:
The estimated impact of the proposed changes to the bank levy and introduction of a tax surcharge on banking companies announced in the July budget is to increase the net tax cost to Nationwide by £300 million over the next five years. This is equivalent to the capital required to support about £10 billion of lending. The phasing to the changes is such that the impact is larger in earlier years.
Nationwide is a big player in the mortgage market and most of the £10 billion of lending highlighted will likely be housing finance. The building society, the world’s biggest, said in today’s update it “accounted for more than a quarter of total net lending to the UK housing market.”
CEO Graham Beale singled out the new tax for criticism, saying in the statement: “The proposed changes to the bank levy and introduction of the tax surcharge on banking companies announced in last month’s budget may benefit UK-headquartered international banks but will have a disproportionate effect on building societies such as Nationwide.”
HSBC was the biggest payer of the bank levy and some commentators think the decision to cut it and replace it with a tax was a result of both HSBC and Standard Chartered threatening to move their headquarters outside of the UK.
Beale says: “This represents a missed opportunity to support diversity by acknowledging that building societies are different to banks and to recognise the contribution Nationwide and other mutuals make by lending to the UK economy, and the housing market in particular.”
The tax will also hit challenger banks that have sprung up in the wake of the financial crisis such as Metro Bank, Aldermore, and Shawbrook.
Many are unhappy — Anne Boden, founder of mobile-focused Starling Bank, told the Telegraph recently that the tax is “not in the interest of consumers” and called for an “immediate reconsideration” of the tax.
