UK-based banks are stepping up lobbying efforts against possible tax hikes in the government’s inaugural Budget on Oct. 30. This comes in amid mounting worries that it may tap the cash-rich sector to boost Britain’s finances, senior industry sources said.
Finance minister Rachel Reeves is due to meet senior representatives of the banking sector in the coming days. This is where bankers expecting a rise in taxes on lenders’ profits will be discussed, sources added.
So far neither PM Keir Starmer nor Reeves has said banks will be required to pay higher taxes. However, Starmer had recently said that the burden falling on those with “broader shoulders.” This has fuelled concerns a policy change might be imminent, three sources said.
Spokespeople at the Treasury did not immediately respond to a request for comment.
Expected Tax Hikes
The sources said they anticipate the Treasury will seek to hike taxes by increasing an existing surcharge on profits that lenders already pay.
They said this was the simplest way Reeves could tap the sector to help fill a 22 billion pounds ($28.8 billion) hole in public finances.
This plan would be easier for the finance minister to achieve than cutting the amount of interest UK banks earn on reserves parked at the Bank of England. This measure could distort the effects of its monetary policy, the sources said.
Banks’ Profits Soar
Britain’s largest bank, posted a 78% rise in 2023 pretax profit to $30.3 billion pounds in February. Domestic peers including NatWest Group and Barclays have posted similarly bumper returns.
According to the sources, UK banks are already taxed more aggressively than many other international rivals. Increasing the sector’s costs via taxes could have an impact on the cost and availability of credit, the sources said.
The existing UK bank levy was introduced in 2011 to curb a crisis-era culture of excessive risk and reckless growth across the industry in the wake of the global financial crisis.
Shares in UK banks dipped briefly last week after the Financial Times quoted an unnamed former government official making the case for a “sensibly crafted” levy on banks that have enjoyed bumper profits on the back of higher interest rates.
(with inputs from Reuters)
