Punitive new taxes are set to punish successful smaller banks unfairly according to a leading Midland banker.

Paul Lynam, chief executive of Solihull-based Secure Trust Bank, who also heads the British Bankers’ Association’s challenger banks panel, has hit out at a new eight per cent bank corporation tax surcharge which all banks must now pay.

The new measure was announced by the Chancellor George Osborne in his July Budget and is a counter-balance to the gradual reduction of the bank levy which the Chancellor has pledged to reduce from 0.21 per cent to 0.1 per cent over the next six years.

The surcharge will take an additional eight per cent of banks’ profits each year for the Government, on top of existing corporation tax.

While around 30 big banks pay the bank levy hundreds of smaller banks and building societies will be paying the new eight per cent surcharge.

Mr Lynam feels the Chancellor’s attempt to balance the books is unfair on smaller banks who have grown, lent to SMEs and not called on government support.

Although the finer detail of the move is yet to be established Mr Lynam says it will impinge unfairly on the smaller banks.

He said: “At this stage haven’t seen the final proposals, it is still going through the committee stage but does mean challenger banks will have to pay more, so the rate of capital generation will be slower.

“We will have to adjust the rate of lending across challenger bank panel over the life of this Parliament. It reduces the amount of lending growth by up to £10 billion.

“Clearly we are not very happy about that as we are being used to subsidise bigger banks who have benefits that challenger banks do not have.”

Mr Lynam said that while the bank levy would only apply to banks with more than £25 billion worth of assets the eight per cent surcharge would be applied to all banks - in effect a new tax to subsidise tax cuts for bigger banks.

He said: “Small banks and building societies, which number hundreds, will now be paying a tax they haven’t had, which by definition will be used to subsidise reducing the bank levy that has only been paid by banks with more than £25 billion worth of assets.

“Smaller banks and building societies are being squeezed to pay for lower taxes for the bigger banks.”

Mr Lynam said the latest move flew in the face of government pledges to create a more competitive banking market and that if the Government really wanted to create a “level playing field” it needed to address some of the advantages big banks have, such as being able to obtain funding on more preferential terms.

“The Government is talking about competition in the UK banking market but as soon as it does that it hits smaller banks and challenger banks with a tax out of the blue,” said Mr Lynam.

“It is only fair and equitable that it should be addressing the capital disadvantages smaller and challenger banks face compared to big banks.

“Big banks have a huge funding advantage, as they are deemed too big to fail.

“These guys are able to borrow on the wholesale markets basically at the same cost as the Government, as lenders know the UK Government will not let them fail.

“The interest lenders charge reflects government risk as opposed to say RBS risk. It is much lower than that for Virgin or Secure Trust as we are not deemed too big to fail. Our costs are dramatically higher.

“If the Government wants to tax us on the same basis as HSBC it should be taking proactive steps to give us the funding advantages those larger banks enjoy.

“The Government have to make their words align. At the moment they are saying one thing and doing something different.”

Mr Lynam spoke to the Post as Secure Trust announced a strong set of interim results for the first half of 2015.

The bank saw its profits increase by 40 per cent and its assets exceed £1 billion for the first time, even though it had also invested heavily in the development of an SME lending division.

The group achieved a record level of profit before tax of £16 million, compared to profits of 11.4 million in the first half of 2014.

Operating income was £62.2 million, up from £43.8 million in the first half of 2014, while the bank’s loan book increased by 90 per cent over the same period from £447.8 million to £835 million.

Customer numbers increased by 24 per cent from 391,610 to 486,805.

Secure Trust also announced plans to move into the cash ISA market, most likely in 2016, and revealed it is considering a move into the mortgage market.