Out-Law News 2 min. read
19 Aug 2015, 11:39 am
Commenting in the firm's interim financial report for the first quarter of 2015/16 (6-page / 53KB PDF), Graham Beale said that reforms proposed as part of the 2015 Summer Budget would have a "disproportionate effect" on building societies while benefiting UK-headquartered international banks. Nationwide has estimated that the changes will increase its net tax liability by £300 million over the next five years.
"This is equivalent to the capital required to support about £10 billion of lending," Nationwide said in a statement.
Beale said that the reforms were a "missed opportunity to support diversity by acknowledging that building societies are different to banks and to recognise the contribution Nationwide and other mutual make by lending to the UK economy, and the housing market in particular".
As announced at the Summer Budget, the UK plans to introduce a new 8% tax on UK banks' profits from next year while at the same time gradually reducing the existing annual levy charged on the total value of their balance sheets. The rate of the overall levy will be gradually reduced from 0.21% to 0.1% between 2016 and 2021, with UK banks' overseas subsidiaries due to be excluded from the levy entirely from January 2021.
The bank levy is an annual tax on the value of certain balance sheet assets held by UK banks, as well as the UK operations of foreign banks, and is charged in addition to other tax liabilities including corporation tax. It was introduced in 2011 at a rate of 0.05% as part of the UK's response to the international financial crisis but has gradually increased to its current 0.21% rate. The levy applies to banks' liabilities above a £20 billion threshold, excepting ordinary deposits and government-backed bonds. Longer-term liabilities are taxed at a lower 0.105% rate.
According to the Summer Budget document, the changes to the levy would help to "reduce the impact of tax on the competitiveness of UK banks' overseas operations" and "reflect the ongoing impact of regulatory reform and resolution planning in reducing the risk of these operations to the UK economy". However, smaller 'challenger' banks operating only in the UK have criticised the introduction of the 8% surcharge, with Virgin Money noting in its half-yearly report that it would "slow our progress to mid-teens returns" on its shares.
Nationwide accounted for more than a quarter of total net lending to the UK housing market over the first quarter of this financial year, with a 17.2% increase in gross mortgage lending to £6.8bn, according to its interim statement. Its underlying profit before tax to 30 June 2015 was £400m, a 52% increase on the same period last year, it said.
The firm said that it was backing the aims of the Competition and Markets Authority's investigation into the supply of personal current accounts, a service which it said "continues to be dominated by the established banks". It also said that it would "look to engage in constructive conversations" with the regulators as part of the recently-announced Financial Advice Market Review, which will address how to make affordable financial advice available to a wider range of consumers.