The chancellor is reportedly considering increasing banking surcharges
Chancellor John Healey is set to raise taxes on banks when he delivers his first Budget at the end of the month, according to new reports.
Healey has faced fierce lobbying from the left of the Labor Party and trade unions to impose higher taxes on the sector, after bumper profits reaped by the industry this year, as reported by City AM.
The chancellor is now understood to have decided to target the sector for cash raids as it appears to balance the books on October 28, the Guardian has reported.
The easiest option available to Healey is an increase in the banking surcharge that sits on top of corporation tax. The current surcharge is around three per cent, down from eight per cent under Jeremy Hunt’s term as Chancellor in 2023.
A reversal of the move is understood to be under consideration, which would raise around £2bn a year.
However, some have urged the Chancellor to go further with the windfall tax on lenders’ profits. Campaigners at Positive Money claim the move could raise £19bn from Natwest, Lloyds, Barclays and HSBC alone.
Speaking to reporters in Bangkok at the IMF summit, Healey said: “My observation of banks is that people often see them as large and distant financial institutions, when they are connected to the economic structure of this country and our future prospects.”
He added there were “decisions to be made in the budget”. In a separate interview with Bloomberg Television, Healey described the bank as “part of the jewel … in the crown of the British economy”.
Any announcement seems certain to trigger anger in the City, where attempts to protect the sector from tax raids appear to have fallen on deaf ears. Industry leaders have expressed concern that banks have been subjected to disproportionately high tax rates compared to overseas competitors.
Figures from PwC said that the total tax in UK banks is 46 percent of profits, compared to 42 percent in Amsterdam, 39 percent in Frankfurt, 29 percent in Dublin and 28 percent in Dublin.
A group of City heavyweights – including the heads of TheCityUK, CBI and UK Finance – cautioned Healey in a letter last week that “a higher tax burden may not necessarily generate more tax receipts if capital, people and businesses move elsewhere”.
Conservative leader Kemi Badenoch joined those opposed to the bank tax earlier this week, firing a warning shot at Healey during a visit to Edinburgh.
Shadow Chancellor Andrew Griffith said: “Britain needs growth. But raids in the financial services sector will stifle it. Labor must do business and wealth-creators, not make life even harder.”
The chief executives of HSBC, Lloyds, NatWest, Barclays and Santander were called to a meeting with Healey last week, where the Chancellor kept his cards close to his chest on fiscal policy but cautioned about a “challenging” fiscal landscape. Economists have predicted that £24bn of Healey’s fiscal headroom has been cut by more than half, after a spike in borrowing costs linked to inflationary pressure stemming from the US-Iran conflict.
A Treasury spokesman said: “As has always been the case, decisions on taxation are a matter for the Chancellor to make on fiscal occasions, rather than commenting on rumours, speculation or proposals.”