UK banks brace for possible tax rise in first Labour budget, sources say (updated)

Virgin Money UK

04/09/2024 11:41

(Adds quotes from UK Finance, Positive Money)
    By Sinead Cruise
       LONDON, Sept 4 (Reuters) - Banks in Britain are
intensifying their lobbying against possible tax hikes in the
new Labour government's first budget next month, amid concerns
it may tap the sector to boost public finances, senior industry
sources told Reuters.
    Neither Prime Minister Keir Starmer nor Finance Minister
Rachel Reeves has said banks will have to pay higher taxes, but
Starmer's recent reference to the burden falling on those with
"broader shoulders" has fuelled concerns, three sources said.
    Banks have enjoyed bumper profits in recent years on the
back of higher interest rates.
    Reeves is due to meet senior sector representatives in the
coming days, when bankers expect a rise in taxes on bank profits
will be discussed, two of the sources said.    
    A spokesperson for the Treasury said it would not comment on
"speculation about tax changes outside of a fiscal event".
    The sources, who declined to be named because of the
sensitivity of the matter, said they anticipate the Treasury
will seek to raise an existing surcharge that banks already pay.
    This was the simplest way Reeves could tap the sector to
help fill a 22 billion pound ($28.8 billion) hole in public
finances in her Oct. 30 budget, the sources said. 
    This would be easier than cutting the amount of interest UK
banks earn on reserves parked at the Bank of England, which
could distort the effects of its monetary policy, they added.
    HSBC  HSBA.L , Britain's largest bank, posted a 78% rise in
2023 pretax profit to $30.3 billion pounds in February and
competitors including NatWest Group  NWG.L  and Barclays
 BARC.L  have recorded similarly robust returns.
    British bank shares dipped briefly last week after the
Financial Times quoted an unnamed former government official
making the case for a "sensibly crafted" levy on banks.
    The bank levy was introduced in 2011 to curb excessive risk
and reckless growth following the global financial crisis.
    While the sector has since stockpiled billions of pounds in
capital against its activities, no UK government has made a
serious attempt to phase out the revenue-raising tool.
    
    COMPETITIVE
    A spokesperson for UK Finance, which represents UK banks,
told Reuters it was aware of the rising concern.
    The trade body is poised to reiterate calls for the banks
levy and corporation tax surcharge to be phased out altogether
in its pre-budget submission to the Treasury, which is accepting
feedback until Sept. 10, the spokesperson said.
    "Banks based in the UK pay a significantly higher rate of
tax than those in New York. And our analysis shows that they are
expected to pay notably higher rates of tax in future years than
in other European capitals," UK Finance said.
    Simon Youel, Head of Policy and Advocacy at campaign group
Positive Money, told Reuters that any increase to the banking
surcharge or bank levy should not be viewed as tax hikes, "but
rather a reversal of tax cuts given to banks under the
Conservative government". 
    Starmer and Reeves host Britain's annual investment summit
next month, where they hope to persuade international investors
representing billions of pounds of capital to bankroll their
plans to revive the country's lacklustre economic growth.
    "All of the legislation that happened last year was designed
to create a more competitive environment and was all supported
by Labour," one of the sources said.
    "The industry would be confused and disappointed if
something like this went ahead. The banks are certainly not just
resigned to something like this."  

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