* Tax should not obstruct efforts to improve competition -MP
* Competition should not be impeded by regulation -MP
* MP Tyrie has written to regulator about effect of new tax
By Matt Scuffham
LONDON, Oct 9 (Reuters) - The chairman of an influentialcommittee of British lawmakers has asked the country's financialregulator for assurance that a new banking tax will not damagecompetition within the industry.
British finance minister George Osborne announced plans tointroduce an 8 percent surcharge on banks' profits above 25million pounds ($38 million) from next year in his annual budgetin July, but the move has been criticised by so-calledchallenger banks which say it will hit them disproportionately.
Andrew Tyrie, chairman of parliament's Treasury Committee,has written to the chief executive of the Prudential RegulationAuthority (PRA), Andrew Bailey, saying the committee wanted anassurance from the regulator that it has assessed the effect ofthe new tax on competition in the retail banking sector.
"It is essential that the surcharge does not obstructparliament's efforts over the last four years to increasecompetition in the banking sector," Tyrie said.
The move took the industry by surprise because lawmakers andregulators have been keen for new banks to emerge and challengethe dominance of Britain's biggest four lenders -- LloydsBanking Group, Royal Bank of Scotland, Barclays and HSBC -- which provide more thanthree-quarters of personal current accounts and make nine out ofevery ten business loans.
"Millions of consumers and small businesses have beengetting a poor deal for decades because of inadequatecompetition and choice in banking. It is crucial thatcompetition from new and smaller banks is not unnecessarilyimpeded by prudential regulation," said Tyrie.
The regulator has already eased capital requirements for newbanks and streamlined the process for obtaining a bankinglicence but smaller banks say they still operate at adisadvantage to larger rivals.
A group of new and smaller British banks have set outproposals aimed at offsetting the new tax, including anarrangement that would mean small banks would not have to setaside more capital against loans than larger rivals.
The group includes TSB, Secure Trust, Aldermore, Shawbrook, Tesco Bank, Sainsbury Bank, Close Brothers, Paragon and MetroBank.
Britain's competition watchdog is due to publish theprovisional findings of an investigation into the market forpersonal current accounts and small business banking serviceslater this month.
($1 = 0.6551 pounds) (Editing by Adrian Croft)