Banks Say a Tax Rise on Their Profits Is Planned
Senior banking executives say the chancellor intends to raise taxes on the sector at the Budget on 28 October, and that banks are “on the menu”. Bank shares fell at the open, with Lloyds the biggest faller on the FTSE 100, down about 1.9%, and NatWest down 1.6%. Nothing has been announced; the Treasury says tax decisions are for the chancellor.
The mechanics matter more than the headline. Banks pay a 3% surcharge on top of the 25% corporation tax rate, cut from 8% under Rishi Sunak at the same time as the main rate rose from 19%; restoring it would raise around £2bn a year. A second option now in play, and absent from yesterday’s reporting, is a temporary halt to banks offsetting historic losses against profits, worth perhaps another £1bn a year — one executive calls that “a lot more bearable”. The sector’s own figure of nearly £40bn contributed to the Treasury last year only reaches that total once income tax paid by employees is counted; the taxes banks pay directly were far smaller, £1.4bn from the levy and £1.2bn from the surcharge. The big four made about £15bn in the first half of this year. UK Finance warns higher taxes would “weaken competitiveness, discourage investment and job creation”. Sir Philip Augar, a former City banker, is unsympathetic: the sector cannot be both “too big to fail and too big to tax”. Separately, Andrew Bailey said in Bangkok that second-round effects from energy prices look “quite subdued” so far.