It is good to know that the UK’s challenger banks have got the hang of political lobbying so quickly. They have been getting heated about the impact of a new tax. This summer the government proposed an 8 per cent surcharge on banks’ UK profits above £25m. This will hit many of the new banks, whereas the bank levy — a balance sheet-based tax, which is to be reduced — only applies to large institutions.

In attempting to win the government over, the challengers have dragged out that must-have feature of bank lobbying — the impact on small business lending. Higher taxes, they say, will reduce retained profits. And it is those retained profits that provide the capital for new lending. This is particularly serious for the challengers which, because they are new, have to use much more capital to back lending than their more established rivals.

But take a step back and it is not clear that the challengers’ smallness or newness is proving to be much of a competitive disadvantage. A report from KPMG this year pointed out that the smaller challengers (the likes of Shawbrook, Aldermore and OneSavings) made a pre-tax return on equity of 18 per cent in 2014. The big established names (such as Barclays, Lloyds and RBS) made just 3 per cent. The newcomers have kept costs low and are exploiting profitable niches; their older rivals, meanwhile, have large cost bases and are still paying for the sins of the past. Why shouldn’t the two groups pay the same level of tax? If the challengers are really short of capital for new lending, their ROEs should be good enough to attract more in the equity markets.

The lobbying effort may eventually win some concessions. There are political points to be won in the UK by making lifer easier for the underdog, particularly if it comes at the expense of big banks. But, if they keep making such impressive returns, the challengers’ “poor little us” act will fade pretty quickly.

Email the Lex team at lex@ft.com

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