UK banks brace for possible tax hikes as Budget nears, sources say

Virgin Money UK

04/09/2024 10:15

By Sinead Cruise
       LONDON, Sept 4 (Reuters) - UK-based banks are stepping
up lobbying efforts against possible tax hikes in the
government's inaugural Budget on Oct. 30, amid mounting worries
it may tap the cash-rich sector to boost Britain's finances,
senior industry sources told Reuters.
    Finance minister Rachel Reeves is due to meet senior
representatives of the banking sector in the coming days, where
bankers expect a rise in taxes on lenders' profits will be
discussed, two of the sources said.
    So far neither Prime Minister Keir Starmer nor Reeves has
said banks will be required to pay higher taxes, but Starmer's
recent reference to the burden falling on those with "broader
shoulders" 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. 
    The sources, who declined to be named because of the
sensitivity of the matter, said they anticipate the Treasury
will seek to hike takes 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, a measure which could
distort the effects of its monetary policy, the sources said.
    HSBC  HSBA.L , Britain's largest bank, posted a 78% rise in
2023 pretax profit to $30.3 billion pounds in February and
domestic peers including NatWest Group  NWG.L  and Barclays
 BARC.L  have posted similarly bumper returns.
    According to the sources, UK banks are already taxed more
aggressively than many other international rivals, and
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.

 (Reporting By Sinead Cruise, additional reporting by Elizabeth
Piper, editing by Elisa Martinuzzi and Christina Fincher)
 ((sinead.cruise@thomsonreuters.com; 020 7513 5026; Reuters
Messaging: sinead.cruise.thomsonreuters.com@reuters.net))