Banks in Britain are on high alert as the new Labour government’s first budget approaches, with concerns about possible tax hikes that could impact the financial sector. Prime Minister Keir Starmer’s recent comments about those with “broader shoulders” bearing the burden of taxes have raised alarms among the banking industry. Currently, neither Starmer nor Finance Minister Rachel Reeves have explicitly mentioned plans to increase taxes for banks, but industry sources are gearing up for potential changes.
The rise in concerns comes as banks have been enjoying significant profits in recent years due to higher interest rates. Reeves is scheduled to meet with senior banking representatives soon, where discussions about potential tax hikes on bank profits are expected to take place. While a spokesperson for the Treasury declined to comment on speculation about tax changes, industry sources anticipate a potential increase in the existing surcharge that banks already pay to help fill a significant gap in public finances identified in the upcoming budget.
HSBC, the largest bank in Britain, reported a substantial increase in pretax profit in 2023, with competitors like NatWest Group and Barclays also recording impressive returns. However, bank shares in the UK experienced a brief dip following discussions about a possible levy on banks to boost government revenue. The bank levy was initially introduced in 2011 to regulate risk and reckless growth post-global financial crisis, but the industry has continued to feel the impact of the policy.
While UK Finance, the organization representing UK banks, has expressed concern about potential tax hikes on the sector, it is pushing for the phasing out of the bank levy and corporation tax surcharge altogether in its pre-budget submission to the Treasury. The organization highlights the significantly higher tax rates UK banks pay compared to counterparts in New York and other European capitals. Campaign groups like Positive Money view any potential increase in the banking surcharge or bank levy as a reversal of tax cuts previously granted to banks under the Conservative government.
As the government prepares for Britain’s annual investment summit next month, where international investors will be courted for potential capital investment, the banking industry remains cautious about potential tax changes. The summit aims to attract substantial investment to revitalize the country’s economic growth. Amidst uncertainty about potential tax hikes, industry sources express confusion and disappointment at the possibility of increased levies on banks. The industry remains vigilant and prepared to engage with policymakers to protect their interests in the face of economic change.
