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‘Bank profits charge could take £20bn out of sector’

The Building Societies Association has warned that a new charge on bank profits could take up to £20bn out of the mortgage market over the next five years.

In the July Budget, Chancellor George Osborne announced plans to gradually reduce the levy imposed on banks and instead bring in an 8 per cent surcharge on profits from next January.

The tax will hit institutions recording more than £25m in annual profits, while the levy will drop from 0.21 per cent to 0.1 per cent by 2021.

The BSA says this will unfairly target its largest members because, unlike banks, they are unable to raise capital through methods other than retained profits.

As a result, profits that would otherwise be used to support further lending will now be subject to tax.

The BSA says under the proposals Nationwide, Skipton, Yorkshire, Coventry, Leeds and Principality building societies could be left with an additional annual tax bill of £126m.

It estimates this sum could be used to support as much as £4bn a year of mortgage lending, or £20bn over the next five years.

It is only Nationwide that pays the bank levy, so five of the top six building societies will not benefit from the corresponding reduction in costs.

One building society source says: “The Government said in its manifesto that it wants to support aspiring buyers. But now capital that could have been put aside as retained profit has to go on the tax, which otherwise would equate to £20bn of lending.

“We can’t say for sure that lending won’t happen but that money is now at risk.”

The trade body is in talks with the Treasury over potential reforms to the proposals.

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