Osborne faces growing rebellion as MPs fear new tax will hurt challenger banks

Published: 16:03 EST, 8 October 2015 | Updated: 16:03 EST, 8 October 2015

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Concerns: Andrew Tyrie, chairman of the Treasury Select Committee

George Osborne faces a growing rebellion over his new tax on banks after a senior Tory MP raised fears it could stifle competition and lead to a poorer deal for millions of customers.

Andrew Tyrie, chairman of the Treasury Select Committee, has asked for assurances from the Bank of England that the 8 per cent surcharge on UK profits will not penalise new challenger banks, enabling the biggest lenders to tighten their stranglehold on the market.

In a letter to Andrew Bailey, the boss of the Bank’s Prudential Regulation Authority, Tyrie asks: ‘In the PRA’s view, does the new corporation tax surcharge for banks make the retail banking sector more open to competition from new entrants, or does it further entrench the large incumbents?’

Bosses of a string of smaller lenders, including Virgin Money, Nationwide and Aldermore, have already railed against the new tax, which is set to come into force next year after being announced by the Chancellor in his July budget.

They complain that it will wipe millions of pounds from their profits and restrict their ability to lend. Challenger banks say they are also penalised by regulations that force them to hold more capital than established lenders.